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Novartis Third Quarter and Nine Months 2020
Condensed interim financial report – Supplementary Data
Novartis Global Communications |
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Novartis Third Quarter and Nine Months 2020
Condensed Interim Financial Report – Supplementary Data
Condensed Interim Financial Report – Supplementary Data
INDEX | Page |
GROUP AND DIVISIONAL OPERATING PERFORMANCE | |
Group | 3 |
Innovative Medicines | 8 |
Sandoz | 14 |
CASH FLOW AND GROUP BALANCE SHEET | 16 |
INNOVATION REVIEW | 20 |
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | |
Consolidated income statements | 24 |
Consolidated statements of comprehensive income | 26 |
Consolidated balance sheets | 27 |
Consolidated statements of changes in equity | 28 |
Consolidated statements of cash flows | 31 |
Notes to condensed consolidated interim financial statements, including update on legal proceedings | 33 |
SUPPLEMENTARY INFORMATION | 54 |
CORE RESULTS | |
Reconciliation from IFRS to core results | 55 |
Group | 57 |
Innovative Medicines | 59 |
Sandoz | 60 |
Corporate | 61 |
Discontinued operations | 62 |
ADDITIONAL INFORMATION | |
Income from associated companies | 63 |
Condensed consolidated changes in net debt / Share information | 63 |
Free cash flow | 64 |
Effects of currency fluctuations | 66 |
DISCLAIMER | 68 |
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Novartis Third Quarter and Nine Months 2020
Condensed Interim Financial Report – Supplementary Data
Condensed Interim Financial Report – Supplementary Data
Group
Key figures 1, 2 | Q3 2020 | Q3 2019 | % change | 9M 2020 | 9M 2019 | % change | ||
USD m | USD m | USD | cc | USD m | USD m | USD | cc | |
Net sales to third parties from continuing operations | 12 259 | 12 172 | 1 | 0 | 35 889 | 35 042 | 2 | 4 |
Divisional operating income from continuing operations | 2 393 | 2 595 | -8 | -2 | 7 457 | 7 823 | -5 | 2 |
Corporate income and expense, from continuing operations, net | 19 | -237 | nm | nm | 51 | -560 | nm | nm |
Operating income from continuing operations | 2 412 | 2 358 | 2 | 9 | 7 508 | 7 263 | 3 | 11 |
As % of net sales | 19.7 | 19.4 | 20.9 | 20.7 | ||||
Income from associated companies | 226 | 253 | -11 | -10 | 532 | 509 | 5 | 5 |
Interest expense | -209 | -216 | 3 | 1 | -668 | -647 | -3 | -5 |
Other financial income and expense | -19 | 12 | nm | nm | -53 | 56 | nm | nm |
Taxes | -478 | -366 | -31 | -38 | -1 347 | -1 163 | -16 | -24 |
Net income from continuing operations | 1 932 | 2 041 | -5 | 0 | 5 972 | 6 018 | -1 | 6 |
Net income from discontinued operations | 4 590 | |||||||
Net income | 1 932 | 2 041 | -5 | 0 | 5 972 | 10 608 | -44 | -40 |
Basic earnings per share from continuing operations (USD) | 0.85 | 0.90 | -6 | 0 | 2.62 | 2.62 | 0 | 7 |
Basic earnings per share from discontinued operations (USD) | 2.00 | |||||||
Basic earnings per share (USD) | 0.85 | 0.90 | -6 | 0 | 2.62 | 4.62 | -43 | -39 |
Cash flows from operating activities from continuing operations | 3 156 | 4 562 | -31 | 9 645 | 10 007 | -4 | ||
Free cash flow from continuing operations | 2 697 | 3 968 | -32 | 8 349 | 9 449 | -12 | ||
Core | ||||||||
Core operating income from continuing operations | 4 069 | 3 748 | 9 | 11 | 11 915 | 10 650 | 12 | 16 |
As % of net sales | 33.2 | 30.8 | 33.2 | 30.4 | ||||
Core net income from continuing operations | 3 467 | 3 212 | 8 | 10 | 10 124 | 9 119 | 11 | 15 |
Core net income from discontinued operations | 278 | |||||||
Core net income | 3 467 | 3 212 | 8 | 10 | 10 124 | 9 397 | 8 | 11 |
Core basic earnings per share from continuing operations (USD) | 1.52 | 1.41 | 8 | 9 | 4.44 | 3.97 | 12 | 16 |
Core basic earnings per share from discontinued operations (USD) | 0.12 | |||||||
Core basic earnings per share (USD) | 1.52 | 1.41 | 8 | 9 | 4.44 | 4.09 | 9 | 12 |
nm = not meaningful |
1 Continuing operations include the businesses of Innovative Medicines and Sandoz Division including the US generic oral solids and dermatology portfolio and Corporate activities and discontinued operations include the business of Alcon. See page 42 for full explanation.
2 Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 54. Unless otherwise noted, all growth rates in this Release refer to same period in prior year.
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COVID-19 and ESG update
· | Overall market conditions have been recovering, though COVID-19 continues to weigh on certain therapeutic areas |
· | The negative impact on demand has been most notable in dermatology, ophthalmology and Sandoz retail |
· | Our operations remain stable and cash collections continue to be according to our normal trade terms, with days sales outstanding at normal levels |
· | Novartis remains well positioned to meet its ongoing financial obligations and has sufficient liquidity to support our normal business activities |
· | Drug development operations are continuing with manageable disruptions (please see Innovation Review section), with our range of digital technologies allowing us to proactively manage our clinical trials portfolio |
· | Novartis continues to work closely with third parties to fight the COVID-19 pandemic |
· | In September, we announced a collaboration with the African Union to facilitate the supply of COVID-19 related medicines |
· | ESG, a key strategic priority for the Novartis Board of Directors and Executive Committee, is integrated across Novartis operations |
· | Novartis focuses on four strategic ESG pillars defined as material by stakeholders: Ethical Standards, Pricing and Access, Global Health Challenges and Corporate Citizenship |
· | We reinforced our ambition to be a healthcare industry leader in environmental sustainability, further strengthening already ambitious target for carbon neutrality to include our entire supply chain by 2030 |
· | Novartis issued the healthcare industry’s first sustainability-linked bond demonstrating its commitment to wider society |
· | Recent ESG rating agencies upgrades were based on: recent settlements, strong governance including extensive ethics policies, leading programs to expand access to healthcare to people in resource-constrained settings and comprehensive employee engagement strategy relative to peers |
Financials
In order to comply with International Financial Reporting Standards (IFRS), Novartis has separated the Group’s reported financial data into “continuing” and “discontinued” operations. The results of the Alcon business in 2019 are reported as discontinued operations. See page 42 and Notes 2, 3 and 10 for a full explanation.
The commentary below focuses on continuing operations including the businesses of Innovative Medicines and Sandoz, as well as the continuing Corporate functions. We also provide information on discontinued operations.
Continuing operations third quarter
Net sales
Net sales were USD 12.3 billion (+1%, 0% cc) in the third quarter driven by volume growth of 7 percentage points, offset by price erosion of 4 percentage points and the negative impact from generic competition of 3 percentage points.
Corporate income and expense, net
Corporate income and expense, which includes the cost of Group headquarter and coordination functions, amounted to an income of USD 19 million in the third quarter compared to an expense of USD
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237 million in prior year, mainly driven by favorable contributions from the Novartis Venture Fund and lower restructuring costs.
Operating income
Operating income was USD 2.4 billion (+2%, +9% cc) mainly due to lower spending, improved gross margin and gains on financial assets, partly offset by higher legal charges.
Core operating income was USD 4.1 billion (+9%, +11% cc) due to lower spending and improved gross margin. Core operating income margin was 33.2% of net sales, increasing by 2.4 percentage points (+3.2 percentage points cc).
Income from associated companies
Income from associated companies decreased from USD 253 million in prior year to USD 226 million in the third quarter of 2020 driven by a lower estimated share of income from Roche Holding AG.
Core income from associated companies decreased from USD 313 million in prior year to USD 288 million in the third quarter of 2020 in line with the decrease in reported income from associated companies.
Interest expense and other financial income/expense
Interest expense amounted to USD 209 million compared to prior year interest expense of USD 216 million. Other financial income and expense amounted to a loss of USD 19 million compared to an income of USD 12 million in the prior year mainly due to lower interest income in the current period.
Taxes
The tax rate for continuing operations in the third quarter was 19.8% compared to 15.2% in the prior year. The third quarter tax rate was negatively impacted by the effect of legal charges.
Excluding the impact of the legal charges, the third quarter tax rate would have been 16.7% compared to 15.2% in the prior year. The increase from prior year was mainly the result of a change in profit mix.
The core tax rate for continuing operations was 16.0% compared to 16.4% in prior year.
Net income, EPS and free cash flow
Net income was USD 1.9 billion (-5%, 0% cc) as higher operating income was offset by a higher tax rate. EPS was USD 0.85 (-6%, 0% cc), in line with net income.
Core net income was USD 3.5 billion (+8%, +10% cc) mainly driven by growth in core operating income. Core EPS was USD 1.52 (+8%, +9% cc), in line with core net income.
Free cash flow from continuing operations amounted to USD 2.7 billion (-32%) compared to USD 4.0 billion in the prior year quarter. This decrease was due to lower cash flows from operating activities, including higher payments related to legal settlements.
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Continuing operations nine months
Net sales
Net sales were USD 35.9 billion (+2%, +4% cc) in the first nine months mainly driven by Entresto, Zolgensma and Cosentyx. Volume contributed 9 percentage points to sales growth, partly offset by price erosion of 3 percentage points and the negative impact from generic competition of 2 percentage points.
Corporate income and expense, net
Corporate income and expense, which includes the cost of Group headquarter and coordination functions, amounted to an income of USD 51 million in the nine months, compared to an expense of USD 560 million in prior year, mainly driven by a favorable contribution from the Novartis Venture Fund, royalty settlement gain related to intellectual property rights, and lower restructuring costs.
Operating income
Operating income was USD 7.5 billion (+3%, +11% cc) mainly driven by sales growth, improved gross margin and lower spending, partly offset by higher amortization and lower divestment gains.
Core operating income was USD 11.9 billion (+12%, +16% cc) mainly driven by higher sales and improved gross margin. Core operating income margin was 33.2% of net sales, increasing by 2.8 percentage points (+3.6 percentage points cc).
Income from associated companies
Income from associated companies amounted to USD 532 million in the first nine months of 2020 compared to USD 509 million in the prior year.
The share of income from Roche was USD 535 million compared to USD 510 million in the prior year. The estimated income for Roche Holding AG, net of amortization, was USD 599 million compared to USD 596 million in the prior year. This was partly offset by the negative prior year true up of USD 64 million in the first quarter of 2020, compared to a negative prior year true up of USD 129 million recognized in the first quarter of 2019. In addition, a USD 43 million income from the revaluation of the deferred tax liability, recognized upon initial accounting for the Roche investment, was recorded in the first quarter of 2019, following a change in the enacted tax rate in February 2019, of the Swiss Canton Basel-Stadt, effective January 1, 2019.
Core income from associated companies in the first nine months of 2020 increased to USD 868 million compared to USD 844 million in prior year driven by a higher estimated core income contribution from Roche Holding AG. The core income contribution from Roche Holding AG increased to USD 871 million from USD 845 million in the prior year, driven by a higher estimated core income contribution from Roche for the current period. In addition a favorable prior year core income true up of USD 38 million was recorded in the first quarter of 2020, compared to a favorable true up of USD 32 million in the first quarter of 2019.
Interest expense and other financial income/expense
Interest expense increased to USD 668 million from USD 647 million in the prior year, mainly due to an increase in interest expense from discounting long term liabilities. Other financial income and expense amounted to a loss of USD 53 million compared to an income of USD 56 million in prior year mainly due to lower interest income for the current period.
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Taxes
The tax rate for continuing operations in the first nine months was 18.4% compared to 16.2% in the prior year. The tax rate was negatively impacted by the effect of non-deductible legal settlement expenses and legal charges in the first nine months and the impact of Swiss tax reform in the prior year.
Excluding these impacts, the first nine months rate would have been 16.8% compared to 15.4% in the prior year. The increase from prior year was mainly the result of a change in profit mix.
The core tax rate for continuing operations was 16.0% compared to 16.4% in prior year.
Net income, EPS and free cash flow
Net income was USD 6.0 billion (-1%, +6% cc) as higher operating income was offset by a higher tax rate. EPS was USD 2.62 (0%, +7% cc), growing faster than net income and benefiting from lower weighted average number of shares outstanding.
Core net income was USD 10.1 billion (+11%, +15% cc) mainly driven by growth in core operating income. Core EPS was USD 4.44 (+12%, +16% cc), growing faster than core net income benefiting from lower weighted average number of shares outstanding.
Free cash flow from continuing operations amounted to USD 8.3 billion (-12%) compared to USD 9.4 billion in the prior year period, primarily as higher operating income adjusted for non-cash items was more than offset by payments related to legal settlements and lower divestment proceeds.
Discontinued operations
Discontinued operations include the business of Alcon and certain corporate costs directly attributable to Alcon up to the spin-off date. As the Alcon spin-off was completed on April 9, 2019, the first nine months of the prior year included three months of operating results of the divested business.
In the first nine months of 2020, there were no activities related to discontinued operations. In the first nine months of 2019, discontinued operations net sales were USD 1.8 billion, operating income amounted to USD 71 million and net income from discontinued operations was USD 4.6 billion, including the non-taxable non-cash net gain on distribution of Alcon Inc. to Novartis AG shareholders which amounted to USD 4.7 billion. For further details see Note 2 “Distribution of Alcon Inc. to Novartis AG shareholders”, Note 3 “Significant transactions – Completion of the spin-off of the Alcon business through a dividend in kind distribution to Novartis AG shareholders” and Note 10 “Discontinued operations”.
Total Group nine months
For the total Group, net income amounted to USD 6.0 billion compared to USD 10.6 billion in the prior year, including the non-taxable non-cash net gain on distribution of Alcon Inc. Basic earnings per share was USD 2.62 compared to USD 4.62 in prior year. Cash flow from operating activities for the total Group amounted to USD 9.6 billion and free cash flow to USD 8.3 billion.
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Innovative Medicines
Q3 2020 | Q3 2019 | % change | 9M 2020 | 9M 2019 | % change | ||||
USD m | USD m | USD | cc | USD m | USD m | USD | cc | ||
Net sales | 9 837 | 9 688 | 2 | 1 | 28 780 | 27 794 | 4 | 5 | |
Operating income | 1 998 | 2 404 | -17 | -11 | 6 786 | 7 077 | -4 | 2 | |
As % of net sales | 20.3 | 24.8 | 23.6 | 25.5 | |||||
Core operating income | 3 525 | 3 300 | 7 | 9 | 10 433 | 9 528 | 9 | 13 | |
As % of net sales | 35.8 | 34.1 | 36.3 | 34.3 |
COVID-19 impacts
The pandemic continues to negatively impact demand in certain therapeutic areas, mainly in dermatology and ophthalmology. Despite this, nine months sales grew 5% (cc) with core operating income growing 13% (cc) driven by the launch uptake of Zolgensma and Piqray as well as continuing momentum on Entresto, Cosentyx, Promacta/Revolade, Kisqali, Tafinlar + Mekinist and Jakavi. Spending was lower in the second and third quarter as we implemented and embraced new ways of working, which include lower travel and meeting costs, as well as lower promotional activities.
Third quarter
Net sales
Net sales were USD 9.8 billion (+2%, +1% cc) with volume contributing 9 percentage points to growth, pricing a negative 5 percentage points and generic competition had a negative impact of 3 percentage points mainly due to Afinitor and Exjade.
In the US (USD 3.6 billion) sales were -2% versus prior year, as growth of Entresto, Cosentyx and Piqray was more than offset by generic impacts, mainly on Afinitor. In Europe (USD 3.5 billion, +8%, +5% cc) sales grew driven by continued strong performance of Entresto, Jakavi, Tafinlar + Mekinist and Kisqali. Japan sales were USD 0.6 billion (0%, -1% cc). Emerging Growth Markets grew in constant currencies (0%, +4% cc), including double digit growth in China, with the launches of Entresto and Cosentyx.
Pharmaceuticals BU sales were USD 6.1 billion (+3%, +2% cc). There was continued growth momentum from Entresto (USD 632 million, +47%, +45% cc), Zolgensma (USD 291 million, +82%, +79% cc) and Cosentyx (USD 1 012 million, +8%, +7% cc). Growth was partly offset by declines in Established Medicines and ophthalmology brands. The COVID-19 pandemic continued to negatively impact mainly ophthalmology and new patient starts in dermatology.
Oncology BU sales were broadly in line with prior year (USD 3.7 billion, 0%, -1% cc). Strong performance of Kisqali (USD 183 million, +49%, +50% cc), Promacta/Revolade (USD 442 million, +16%, +16% cc), Jakavi (USD 335 million, +20%, +18% cc), Tafinlar + Mekinist (USD 397 million, +15%, +14% cc) and Piqray (USD 83 million, +93%, +95% cc) was offset by generic competition, mainly for Afinitor and Exjade and the negative impact of the COVID-19 pandemic.
Operating income
Operating income was USD 2.0 billion (-17%, -11% cc), mainly due to higher legal provisions and higher impairments. Operating income margin was 20.3% of net sales decreasing 4.5 percentage points (-2.9 percentage points in cc).
Core adjustments were USD 1.5 billion, mainly due to USD 0.7 billion for amortization. Core adjustments increased compared to prior year mainly due to higher legal provisions and higher impairments.
Core operating income was USD 3.5 billion (+7%, +9% cc) mainly driven by COVID-19 related lower spending, productivity programs and sales growth. Core operating income margin was 35.8% of net sales, increasing 1.7 percentage points (+2.6 percentage points cc). Core gross margin was in line with prior year. Core R&D expenses as a percentage of net sales decreased by 1.2 percentage points (cc) mainly driven by productivity, portfolio prioritization and COVID-19 related spending impacts. Core SG&A
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expenses declined by 1.2 percentage points (cc) benefiting from COVID-19 related spending impacts. Core Other Income and Expense net increased the margin by 0.2 percentage points (cc).
Nine months
Net sales
Net sales were USD 28.8 billion (+4%, +5% cc) with volume contributing 12 percentage points to growth, pricing a negative 4 percentage points and generic competition had a negative impact of 3 percentage points. Pharmaceuticals BU grew 4% (+6% cc) driven by Entresto (USD 1.8 billion, +47%, +48% cc), Zolgensma (USD 0.7 billion), Cosentyx (USD 2.9 billion, +12%, +12% cc) and the Xiidra acquisition. This is partly offset by declines in Lucentis and other ophthalmology products, driven mainly by lower demand due to COVID-19. Oncology BU grew 2% (+4% cc) driven by Promacta/Revolade (USD 1.3 billion, +22%, +24% cc), Kisqali (USD 0.5 billion, +55%, +59% cc), Piqray (USD 0.2 billion), Tafinlar + Mekinist (USD 1.1 billion, +15%, +17% cc) and Jakavi (USD 1.0 billion, +17%, +19% cc), partially offset by generic competition for Afinitor and Exjade.
The US (USD 10.7 billion, +6%) delivered strong performance of Zolgensma, Entresto and Cosentyx. Europe sales (USD 9.8 billion, +3%, +4% cc) grew driven by Entresto, Jakavi, Kisqali and Kymriah. Japan sales were USD 1.8 billion (0%, -2% cc). Emerging Growth Markets sales grew (+3%, +9% cc), led by double digit growth in China, including the launches of Cosentyx and Entresto.
Operating income
Operating income was USD 6.8 billion (-4%, +2% cc), mainly driven by sales growth partly offset by higher amortization, lower divestment gains and higher impairments. Operating income margin was 23.6% of net sales, decreasing 1.9 percentage points (-0.7 percentage points cc).
Core adjustments were USD 3.6 billion, mainly due to USD 2.2 billion of amortization. Core adjustments increased compared to prior year mainly due to higher amortization, lower divestment gains and higher impairments.
Core operating income was USD 10.4 billion (+9%, +13% cc) mainly driven by sales growth, lower COVID-19 related spending and improved gross margin. Core operating income margin was 36.3% of net sales, increasing 2.0 percentage points (+2.7 percentage points cc). Core gross margin increased by 0.4 percentage points (cc) mainly driven by productivity. Core R&D expenses as a percentage of net sales decreased by 1.2 percentage points (cc) mainly driven by the higher net sales, productivity, portfolio prioritization and COVID-19 related spending impacts. Core SG&A expenses declined by 1.2 percentage points (cc) benefiting from COVID-19 related spending impacts. Core Other Income and Expense net decreased the margin by 0.1 percentage points (cc).
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ONCOLOGY BUSINESS UNIT
Q3 2020 | Q3 2019 | % change | 9M 2020 | 9M 2019 | % change | ||||
USD m | USD m | USD | cc | USD m | USD m | USD | cc | ||
Tasigna | 478 | 487 | -2 | -2 | 1 445 | 1 389 | 4 | 5 | |
Promacta/Revolade | 442 | 380 | 16 | 16 | 1 267 | 1 036 | 22 | 24 | |
Tafinlar + Mekinist1 | 397 | 345 | 15 | 14 | 1 134 | 982 | 15 | 17 | |
Sandostatin | 361 | 388 | -7 | -7 | 1 076 | 1 183 | -9 | -8 | |
Jakavi | 335 | 279 | 20 | 18 | 963 | 821 | 17 | 19 | |
Gleevec/Glivec | 280 | 320 | -13 | -13 | 897 | 950 | -6 | -4 | |
Afinitor/Votubia | 262 | 400 | -35 | -34 | 824 | 1 174 | -30 | -29 | |
Kisqali | 183 | 123 | 49 | 50 | 503 | 325 | 55 | 59 | |
Exjade/Jadenu | 162 | 253 | -36 | -37 | 497 | 744 | -33 | -33 | |
Votrient | 160 | 198 | -19 | -19 | 488 | 578 | -16 | -14 | |
Lutathera | 119 | 119 | 0 | -1 | 336 | 334 | 1 | 0 | |
Kymriah | 122 | 79 | 54 | 51 | 333 | 182 | 83 | 82 | |
Piqray | 83 | 43 | 93 | 95 | 236 | 49 | nm | nm | |
Adakveo | 35 | nm | nm | 71 | nm | nm | |||
Tabrecta | 12 | nm | nm | 18 | nm | nm | |||
Other | 267 | 301 | -11 | -12 | 806 | 895 | -10 | -9 | |
Total Oncology business unit | 3 698 | 3 715 | 0 | -1 | 10 894 | 10 642 | 2 | 4 |
1 Majority of sales for Mekinist and Tafinlar are combination, but both can be used as monotherapy
nm = not meaningful
Tasigna (USD 478 million, -2%, -2% cc) sales declined in Emerging Growth Markets, Europe and Japan. The decline was partly offset by growth in the US.
Promacta/Revolade (USD 442 million, +16%, +16% cc) grew across all regions, driven by increased use in chronic immune thrombocytopenia (ITP) and as first-line treatment for severe aplastic anemia (SAA) in the US.
Tafinlar + Mekinist (USD 397 million, +15%, +14% cc), the worldwide leader in BRAF/MEK-inhibition, continued to show strong growth driven by demand in adjuvant melanoma as well as NSCLC.
Progression-free survival (PFS) results from the Phase III COMBI-i trial presented at ESMO confirmed Tafinlar + Mekinist as the standard-of-care targeted therapy for advanced BRAF-mutated melanoma, despite the investigational study not meeting its primary endpoint.
Progression-free survival (PFS) results from the Phase III COMBI-i trial presented at ESMO confirmed Tafinlar + Mekinist as the standard-of-care targeted therapy for advanced BRAF-mutated melanoma, despite the investigational study not meeting its primary endpoint.
Sandostatin (USD 361 million, -7%, -7% cc) sales declined due to ongoing competitive pressure in Europe, US and Japan. The brand also continues to be impacted by generic competition in Europe.
Jakavi (USD 335 million, +20%, +18% cc) growth was driven by strong demand in the myelofibrosis and polycythemia vera indications.
Gleevec/Glivec (USD 280 million, -13%, -13% cc) declined due to increased generic competition.
Afinitor/Votubia (USD 262 million, -35%, -34% cc) declined due to generic competition in the US, Europe and Emerging Growth Markets.
Kisqali (USD 183 million, +49%, +50% cc) continued strong growth across all geographies benefiting from the ongoing impact of positive overall survival data from two pivotal Phase III trials (MONALEESA-7 and MONALEESA-3).
Exjade/Jadenu (USD 162 million, -36%, -37% cc) declined mainly due to pressure from generic competition in the US and other regions.
Votrient (USD 160 million, -19%, -19% cc) declined due to increased competition in Europe and the US.
Lutathera (USD 119 million, 0%, -1% cc) sales were broadly in line with prior year, as the COVID-19 pandemic continued to have an impact on the brand. There are more than 360 total centers now actively treating patients. Sales from all AAA brands (including Lutathera and radiopharmaceutical diagnostic products) were USD 181 million.
Kymriah (USD 122 million, +54%, +51% cc) grew strongly in Europe, Japan and US. Coverage continues to expand, with more than 260 qualified treatment centers and 26 countries having coverage for at least one indication. At the interim analysis, the Phase II ELARA trial of Kymriah in patients with relapsed or refractory follicular lymphoma met its primary endpoint of complete response rate (CRR). The FDA granted orphan drug designation to Kymriah for the treatment of follicular lymphoma.
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Piqray (USD 83 million, +93%, +95% cc) grew significantly in the US as the launch roll-out continued. Piqray in combination with fulvestrant received European Commission (EC) approval to treat HR+/HER2- advanced breast cancer with a PIK3CA mutation. Piqray is the first and only therapy specifically for the approximately 40% of HR+/HER2- advanced breast cancer patients who have a PIK3CA mutation, which is associated with poor prognosis. Piqray is now approved in 48 countries, including the US and European member states.
Adakveo (USD 35 million) US launch continues to progress well. Payer coverage decisions in the US are expanding, including published Medicaid FFS policies or confirmation of adjudicated claims in 34 states and 88% coverage among commercial plans to date.
Tabrecta (USD 12 million) US launch progressed well. Tabrecta is the first and only therapy approved by the US FDA to specifically target metastatic NSCLC with a mutation that leads to MET exon 14 skipping (METex14), as detected by an FDA-approved test.
PHARMACEUTICAL BUSINESS UNIT
IMMUNOLOGY, HEPATOLOGY and DERMATOLOGY
Q3 2020 | Q3 2019 | % change | 9M 2020 | 9M 2019 | % change | ||||
USD m | USD m | USD | cc | USD m | USD m | USD | cc | ||
Cosentyx | 1 012 | 937 | 8 | 7 | 2 886 | 2 586 | 12 | 12 | |
Ilaris | 220 | 177 | 24 | 25 | 633 | 493 | 28 | 30 | |
Total Immunology, Hepatology and Dermatology | 1 232 | 1 114 | 11 | 10 | 3 519 | 3 079 | 14 | 15 |
Xolair sales for all indications are reported in the Respiratory franchise
Cosentyx (USD 1 012 million, +8%, +7% cc) saw continued growth across indications despite lower new patient starts across the market in dermatology and rheumatology in most geographies due to COVID-19. In July, Cosentyx received EU approval as a first-line systemic treatment for pediatric psoriasis. Approval was based on two Phase III international studies in children and adolescents aged 6 to under 18 years. In August, Cosentyx became the first treatment approved in Japan for the treatment of non-radiographic axial spondyloarthritis (nr-axSpA). In September, Cosentyx received a positive CHMP opinion for a new 300 mg autoinjector and pre-filled syringe, which if approved would enable the 300 mg dose to be administered in a single injection.
Ilaris (USD 220 million, +24%, +25% cc) sales were driven by strong double-digit volume growth, particularly coming from the US and Europe.
OPHTHALMOLOGY
Q3 2020 | Q3 2019 | % change | 9M 2020 | 9M 2019 | % change | ||||
USD m | USD m | USD | cc | USD m | USD m | USD | cc | ||
Lucentis | 515 | 500 | 3 | 0 | 1 403 | 1 569 | -11 | -10 | |
Xiidra | 99 | 102 | -3 | -3 | 268 | 102 | 163 | 164 | |
Beovu | 51 | nm | nm | 153 | nm | nm | |||
Other | 487 | 612 | -20 | -20 | 1 461 | 1 878 | -22 | -21 | |
Total Ophthalmology | 1 152 | 1 214 | -5 | -6 | 3 285 | 3 549 | -7 | -7 |
nm = not meaningful
Lucentis (USD 515 million, +3%, 0% cc) sales have been consistently recovering from the COVID-19 impact since May. Clinics capacity and patients load continue to slowly recover in quarter three but have not yet reached the pre-COVID-19 levels.
Xiidra (USD 99 million, -3%, -3% cc) continued to rebound during the quarter as patient volume at eye care practitioners continued to increase after significant COVID-19 disruption. Total volume accelerated growth in the third quarter vs. second quarter following a broad return to promotion, including significant expansion of direct to consumer advertising starting in July.
Beovu (USD 51 million) launch roll-out continued, with approval now in more than 45 countries. In quarter three, the EMA and CADTH approved a label update for Beovu to include additional information related to the safety signal of retinal vasculitis / retinal vascular occlusion. Updated labels are now approved in 45 countries and all the largest 10 markets. Novartis has a comprehensive program of work
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underway to help support retina specialists with the latest data and shares information on a continuous basis as this becomes available.
Other ophthalmology products declined due to the negative impact of the COVID-19 pandemic and generic impacts in the US, primarily for Travatan and Ciprodex.
NEUROSCIENCE
Q3 2020 | Q3 2019 | % change | 9M 2020 | 9M 2019 | % change | ||||
USD m | USD m | USD | cc | USD m | USD m | USD | cc | ||
Gilenya | 733 | 829 | -12 | -13 | 2 243 | 2 420 | -7 | -7 | |
Zolgensma | 291 | 160 | 82 | 79 | 666 | 175 | nm | nm | |
Mayzent | 49 | 4 | nm | nm | 113 | 9 | nm | nm | |
Aimovig | 39 | 33 | 18 | 11 | 108 | 75 | 44 | 45 | |
Other | 13 | 16 | -19 | -12 | 40 | 46 | -13 | -14 | |
Total Neuroscience | 1 125 | 1 042 | 8 | 6 | 3 170 | 2 725 | 16 | 17 |
nm = not meaningful
Gilenya (USD 733 million, -12%, -13% cc) sales declined due to increased competition and the impact of COVID-19. Gilenya remains the top prescribed high efficacy therapy in 38 countries around the world and the only one approved to treat pediatric RMS. Novartis is in US ANDA litigations with a generic manufacturer. In August 2020, the US District Court in Delaware issued a favorable decision finding the dosage regimen patent valid and infringed, which has been appealed. In parallel, an appeal against a USPTO decision upholding the dosage regimen patent in IPR proceedings is ongoing.
Zolgensma (USD 291 million, +82%, +79% cc) delivered significant growth. Contributing factors were geographic expansion outside of the US and increased newborn screening in the US. Geographic expansion includes recent approval and formal reimbursement in Japan, as well as launch in Europe where we have already seen favorable early market access in Germany and other markets through our Day One Access initiative. Zolgensma was most recently approved in Brazil.
Mayzent (USD 49 million) continued to grow steadily. Growth is driven by fulfilling an important unmet need in patients showing signs of progression despite being on other treatments. Mayzent is the first and only oral DMT studied and proven to delay disease progression in a broad SPMS patient population. In addition to the US and EU, Mayzent is now approved in the UK, Australia, Canada, Japan and Switzerland.
Aimovig (USD 39 million ex-US, ex-Japan +18%, +11% cc) is the most prescribed anti-CGRP worldwide, with more than 480,000 patients prescribed worldwide in the post-trial setting. Aimovig is co-commercialized with Amgen in the US, where Amgen records sales. Novartis has exclusive rights and books sales in all ex-US territories excluding Japan. During the ongoing litigation between the companies the collaboration continues and will remain in force until a final court decision.
Kesimpta (ofatumumab, formerly OMB157) was launched in the US following FDA approval in August. Kesimpta is a targeted B-cell therapy that can deliver powerful and sustained high efficacy, with a favorable safety profile and the flexibility of an at home self-administration for a broad population of RMS patients. We have seen a promising start with our flexible hybrid face-to-face / digital launch. To provide access to eligible US patients while they obtain reimbursement we are providing Kesimpta free of charge for a limited amount of time. Based on our assumption on the time from initiation of therapy to reimbursement we anticipate that a majority of the sales in the first quarter of launch will be free goods and have accrued accordingly. We expect this share to decrease over time as reimbursement progresses.
CARDIOVASCULAR, RENAL AND METABOLISM
Q3 2020 | Q3 2019 | % change | 9M 2020 | 9M 2019 | % change | ||||
USD m | USD m | USD | cc | USD m | USD m | USD | cc | ||
Entresto | 632 | 430 | 47 | 45 | 1 781 | 1 208 | 47 | 48 | |
Other | 0 | 7 | nm | nm | 1 | 19 | -95 | -99 | |
Total Cardiovascular, Renal & Metabolism | 632 | 437 | 45 | 43 | 1 782 | 1 227 | 45 | 46 |
nm = not meaningful
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Entresto (USD 632 million, +47%, +45% cc) sustained strong growth with increased patient share across markets, driven by demand as the essential first choice therapy for HF patients (reduced ejection fraction). Entresto was successfully launched in Japan in August. Novartis is in US ANDA litigation with generic manufacturers.
RESPIRATORY
Q3 2020 | Q3 2019 | % change | 9M 2020 | 9M 2019 | % change | ||||
USD m | USD m | USD | cc | USD m | USD m | USD | cc | ||
Xolair | 320 | 299 | 7 | 6 | 916 | 870 | 5 | 7 | |
Ultibro Group | 154 | 145 | 6 | 4 | 463 | 468 | -1 | 0 | |
Other | 6 | 4 | 50 | 65 | 16 | 16 | 0 | 4 | |
Total Respiratory | 480 | 448 | 7 | 6 | 1 395 | 1 354 | 3 | 5 |
Xolair sales for all indications are reported in the Respiratory franchise
Xolair (USD 320 million, +7%, +6% cc) continued growth in the severe allergic asthma (SAA) and chronic spontaneous urticaria (CSU) indications. In July 2020, Xolair received approval from the European Commission (EC) for a new indication to treat severe chronic rhinosinusitis with nasal polyps (CRSwNP). Novartis co-promotes Xolair with Genentech in the US and shares a portion of operating income, but we do not record any US sales.
Ultibro Group (USD 154 million, +6%, +4% cc) sales grew as strong Ultibro Breezhaler sales more than offset the decline in Seebri Breezhaler and Onbrez Breezhaler.
Enerzair Group consists of Enerzair Breezhaler and Atectura Breezhaler. Enerzair Breezhaler (indacaterol / glycopyrronium bromide / mometasone, formerly known as QVM149) is an inhaled LABA/LAMA/ICS combination for patients whose asthma is uncontrolled with LABA/ICS and is approved in Europe, Japan and Canada. Novartis also launched a digital companion that provides inhalation confirmation, medication reminders and access to objective data to support therapeutic decisions. Atectura Breezhaler (indacaterol / mometasone, formerly known as QMF149) is a LABA/ICS fixed-dose combination for patients whose asthma is uncontrolled with SABA and ICS. It is approved in the EU, Japan and Canada, and has been launched to date in 4 markets.
ESTABLISHED MEDICINES
Q3 2020 | Q3 2019 | % change | 9M 2020 | 9M 2019 | % change | ||||
USD m | USD m | USD | cc | USD m | USD m | USD | cc | ||
Galvus Group | 289 | 320 | -10 | -8 | 906 | 955 | -5 | -2 | |
Diovan Group | 237 | 254 | -7 | -6 | 779 | 798 | -2 | 1 | |
Exforge Group | 237 | 249 | -5 | -5 | 733 | 780 | -6 | -3 | |
Zortress/Certican | 107 | 122 | -12 | -13 | 340 | 362 | -6 | -5 | |
Neoral/Sandimmun(e) | 93 | 101 | -8 | -9 | 290 | 314 | -8 | -7 | |
Voltaren/Cataflam | 91 | 105 | -13 | -11 | 265 | 313 | -15 | -13 | |
Other | 464 | 567 | -18 | -18 | 1 422 | 1 696 | -16 | -14 | |
Total Established Medicines | 1 518 | 1 718 | -12 | -11 | 4 735 | 5 218 | -9 | -7 |
Galvus Group (USD 289 million, -10%, -8% cc) declined primarily due to generic competition in India, as well as price reduction and inventory transfer cycle related to our co-promotion in Japan.
Diovan Group (USD 237 million, -7%, -6% cc) declined mainly due to generic competition.
Exforge Group (USD 237 million, -5%, -5% cc) declined in Europe due to generic competition, partly offset by growth in Emerging Growth markets.
Zortress/Certican (USD 107 million, -12%, -13% cc) declined mainly due to generic competition in the US.
Neoral/Sandimmun(e) (USD 93 million, -8%, -9% cc) declined mainly due to generic competition and mandatory price reductions.
Voltaren/Cataflam (USD 91 million, -13%, -11% cc) declined mainly due to generic competition and external supply issues following the COVID-19 pandemic.
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Sandoz
Q3 2020 | Q3 2019 | % change | 9M 2020 | 9M 2019 | % change | ||||
USD m | USD m | USD | cc | USD m | USD m | USD | cc | ||
Net sales | 2 422 | 2 484 | -2 | -3 | 7 109 | 7 248 | -2 | 0 | |
Operating income | 395 | 191 | 107 | 113 | 671 | 746 | -10 | -1 | |
As % of net sales | 16.3 | 7.7 | 9.4 | 10.3 | |||||
Core operating income | 658 | 615 | 7 | 8 | 1 806 | 1 577 | 15 | 19 | |
As % of net sales | 27.2 | 24.8 | 25.4 | 21.8 | |||||
COVID-19 impacts
Quarter three sales were impacted by ongoing disruption to hospitals and HCP practices, which limited patient access to treatments for our Retail business across regions. The Anti-Infectives segment was also impacted by a weaker cough and cold season likely due to COVID-19. Despite this, nine month sales were in line with prior year (cc) and core operating income grew 19% (cc). Spending was lower in all quarters as we implemented and embraced new ways of working, which include lower travel and meeting costs, as well as lower promotional activities.
Third quarter
Net sales
Sandoz net sales were USD 2.4 billion (-2%, -3% cc) in the third quarter with a volume decline of 1 percentage point (cc). There was a negative price effect of 2 percentage points (cc), despite the benefit from off-contract sales and favorable revenue deduction adjustments. Excluding the US, net sales grew (+3%, +2% cc).
Sales in Europe were USD 1.3 billion (0%, -2% cc), impacted by the slower retail recovery. Sales in the US were USD 547 million (-16%), driven by the continued oral solids decline including partnership terminations as well as by more US first-to-market launches in the prior year. Sales in Asia / Africa / Australasia were USD 385 million (+16%, +14% cc) including the contribution from the Aspen Japan acquisition. Sales in Canada and Latin America were USD 192 million (-4%, +6% cc).
Global sales of Biopharmaceuticals (biosimilars, biopharmaceutical contract manufacturing and Glatopa) grew to USD 498 million (+16%, +13% cc), driven by continued strong double-digit growth in Europe from Hyrimoz (adalimumab), Erelzi (etanercept) and Zessly (infliximab) and growth from Omnitrope (somatropin) across all regions. Launch roll-outs in other geographies also contributed to growth.
Retail sales were USD 1.8 billion (-6%, -6% cc), mainly impacted by the continued decline of US oral solids and COVID-19 related worldwide disruption, particularly in Europe. Total Anti-Infectives franchise sales were USD 266 million (-17%, -18% cc), including finished dosage forms sold under the Sandoz name (USD 154 million, -22%, -22% cc). Anti-Infectives sold to third parties for sale under their own name (USD 112 million, -10%, -13% cc) were impacted by a planned contract discontinuation.
Operating income
Operating income was USD 395 million (+107%, +113% cc), mainly driven by lower restructuring expenses, lower legal settlement provisions, continued gross margin improvements and lower spending. Operating income margin increased by 9.2 percentage points in constant currencies; currency had a negative impact of 0.6 percentage points, resulting in a net increase of 8.6 percentage points to 16.3% of net sales.
Core adjustments were USD 263 million, including USD 67 million of amortization. Prior year core adjustments were USD 424 million. The change in core adjustments compared to prior year was driven by lower net restructuring expenses from the Sandoz transformation and lower net legal provisions.
Core operating income was USD 658 million (+7%, +8% cc) as gross margin improvements and lower spending linked to COVID-19 and cost discipline were partly offset by sales decline. Core operating
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income margin improved by 2.8 percentage points in constant currencies, currency had a negative impact of 0.4 percentage points, resulting in a net increase of 2.4 percentage points to 27.2% of net sales. Core gross margin as a percentage of net sales increased by 2.6 percentage points (cc), driven by favorable product and geographic mix, ongoing productivity improvements and lower price effect. Core R&D expenses increased by 0.6 percentage points (cc) driven by biosimilars pipeline investments. Core SG&A expenses decreased by 1.1 percentage points (cc). Core Other Income and Expense increased by 0.3 percentage points (cc), mainly due to higher IP litigation expenses.
Nine months
Net sales
Net sales were USD 7.1 billion (-2%, 0% cc) with volume growth of 2 percentage points (cc). There was a negative price effect of 2 percentage points (cc), despite the benefit from off-contract sales and favorable revenue deduction adjustments. Excluding the US, net sales grew (+2%, +4% cc).
Sales in Europe were USD 3.9 billion (+1%, +2% cc). Sales in the US were USD 1.6 billion (-14%), due to the continued volume decline in oral solids including partnership terminations as well as by more US first-to-market launches in the prior year. Sales in Asia / Africa / Australasia were USD 1.1 billion (+8%, +8% cc) including the contribution from the Aspen Japan acquisition. Sales in Canada and Latin America were USD 568 million (0%, +10% cc).
Global sales of Biopharmaceuticals (biosimilars, biopharmaceutical contract manufacturing and Glatopa) grew to USD 1.4 billion (+20%, +20% cc), driven by continued strong double-digit growth in Europe from Hyrimoz (adalimumab), Erelzi (etanercept) and Zessly (infliximab) and growth from Omnitrope (somatropin) across all regions. Launch roll-outs in other geographies also contributed to growth.
Retail sales were USD 5.4 billion (-6%, -4% cc) impacted by the declines in the US and COVID-19 related disruption across regions. Total Anti-Infectives franchise sales were USD 848 million (-13%, -11% cc) including finished dosage forms sold under the Sandoz name (USD 510 million, -13%, -11% cc) and Anti-Infectives sold to third parties for sale under their own name (USD 338 million, -12%, -12% cc), which were impacted by a planned contract discontinuation.
Operating income
Operating income was USD 671 million (-10%, -1% cc), mainly due to higher legal provisions mostly offset by gross margin improvements and lower spending linked to COVID-19 and cost discipline. Operating income margin decreased 0.1 percentage point in constant currencies; currency had a negative impact of 0.8 percentage points, resulting in a net decrease of 0.9 percentage points to 9.4% of net sales.
Core adjustments were USD 1.1 billion, including USD 0.3 billion of amortization and USD 0.4 billion legal provision. Prior year core adjustments were USD 0.8 billion. The change in core adjustments compared to prior year was mainly due to higher net legal provisions.
Core operating income was USD 1.8 billion (+15%, +19% cc), driven by gross margin improvements and lower spending linked to COVID-19 and cost discipline. Core operating income margin was 25.4% of net sales, increasing 3.6 percentage points (4.2 percentage points cc). Core gross margin increased by 2.4 percentage points (cc), driven by favorable product and geographic mix along with ongoing productivity improvements and lower price erosion. Core R&D expenses increased by 0.3 percentage points (cc) driven by biosimilars pipeline investments. Core SG&A expenses decreased by 1.8 percentage points (cc). Core Other Income and Expense decreased by 0.3 percentage points (cc), mainly driven by lower net IP litigation expenses.
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GROUP CASH FLOW AND BALANCE SHEET
Cash flow
Third quarter
Net cash flows from operating activities from continuing operations amounted to USD 3.2 billion, compared to USD 4.6 billion in the prior year quarter. This decrease was mainly due to higher provision payments related to legal settlements and unfavorable working capital.
Net cash flows used in investing activities from continuing operations amounted to USD 2.0 billion, compared to USD 3.4 billion in the prior year quarter.
The current year quarter cash outflows were driven by USD 1.5 billion net purchases of marketable securities and commodities. Cash outflows for acquisitions and divestments of businesses, net amounted to USD 0.1 billion. Net other cash outflows of USD 0.4 billion were driven by the purchase of property, plant and equipment, intangible assets, financial assets and other non-current assets of USD 0.6 billion, partly offset by cash inflows of USD 0.2 billion mainly from the sale of financial assets and intangible assets.
In the prior year quarter, net cash outflows of USD 3.4 billion used in investing activities from continuing operations were driven by USD 3.5 billion for the acquisitions and divestments of businesses, net (including the acquisition of Xiidra from Takeda Pharmaceutical Company Limited for USD 3.5 billion). Net other cash inflows of USD 0.1 billion were driven by the sale of financial assets (including USD 0.5 billion proceeds from the sale of Alcon Inc. shares) and intangible assets of USD 0.7 billion, partly offset by cash outflows of USD 0.6 billion for the purchase of property, plant and equipment, intangible assets, financial assets and other non-current assets.
Net cash inflows from financing activities from continuing operations amounted to USD 1.9 billion, compared to net cash outflows of USD 2.7 billion in the prior year quarter.
The current year quarter includes cash inflows of USD 2.2 billion from the increase in non-current financial debts, mainly consisting of USD 2.1 billion from the issuance of a sustainability-linked bond denominated in euro (notional amount of EUR 1.85 billion) and cash inflows of USD 0.7 billion from the net increase in current financial debts. These cash inflows were partly offset by cash outflows of USD 0.9 billion for net treasury share transactions and USD 0.1 billion net payments for lease liabilities.
In the prior year quarter, net cash flows used in financing activities from continuing operations of USD 2.7 billion mainly included the cash outflows for net treasury share transactions of USD 2.9 billion (mainly related to the up-to USD 5 billion share buyback), net payments for lease liabilities of USD 0.1 billion, partly offset by a net increase in financial debts of USD 0.3 billion.
Free cash flow from continuing operations amounted to USD 2.7 billion (-32%) compared to USD 4.0 billion in the prior year quarter. This decrease was due to lower cash flows from operating activities, including higher payments related to legal settlements.
Nine months
Net cash flows from operating activities from continuing operations amounted to USD 9.6 billion, compared to USD 10.0 billion in the prior year period. Higher net income adjusted for non-cash items
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and other adjustments, including divestment gains, was more than offset by higher provision payments related to legal settlements and unfavorable working capital.
Net cash outflows used in investing activities from continuing operations amounted to USD 12.5 billion, compared to USD 1.4 billion in the prior year period.
The current year period cash outflows were driven by the USD 10.0 billion used for the acquisitions and divestments of businesses, net (including the acquisition of The Medicines Company for USD 9.5 billion, net of cash acquired USD 0.1 billion, and the acquisition of Japanese business of Aspen Global Incorporated for USD 0.3 billion). Net purchases of marketable securities and commodities amounted to USD 1.4 billion. Net other cash outflows of USD 1.1 billion were driven by the purchase of property, plant and equipment, intangible assets, financial assets and other non-current assets of USD 1.8 billion, partly offset by cash inflows of USD 0.7 billion from the sale of financial assets (including the USD 0.2 billion proceeds from the sale of Alcon Inc. shares) and intangible assets.
In the prior year period, net cash outflows of USD 1.4 billion used in investing activities from continuing operations were driven by USD 3.8 billion for the acquisitions and divestments of businesses, net (including the acquisition of Xiidra from Takeda Pharmaceutical Company Limited for USD 3.5 billion and the acquisition of IFM Tre, Inc. for USD 0.3 billion). Net proceeds from the sale of marketable securities and commodities amounted to USD 2.3 billion. Net other cash inflows of USD 0.1 billion were driven by the sale of property, plant and equipment (including the proceeds from the sale and leaseback of real estate), financial assets (including USD 0.7 billion proceeds from the sale of Alcon Inc. shares), intangible assets and other non-current assets of USD 2.0 billion, partly offset by cash outflows of USD 1.9 billion for the purchase of property, plant and equipment, intangible assets, financial assets and other non-current assets.
Net cash flows used in investing activities from discontinued operations amounted to USD 0.1 billion compared to USD 1.1 billion in the prior year period. The current year period includes payments related to the portfolio transformation transactions and payments attributable to the spin-off of the Alcon business. The prior year period includes mainly the cash outflow for the acquisition of PowerVision, Inc. of USD 0.3 billion and USD 0.6 billion due to the derecognized cash and cash equivalent following the completion of Alcon spin-off, on April 9, 2019.
Net cash inflows from financing activities from continuing operations amounted to USD 0.8 billion, compared to net cash outflows of USD 15.7 billion in the prior year period.
The current year period includes cash inflows of USD 7.1 billion from the increase in non-current financial debts, mainly consisting of USD 4.9 billion from issuance of bonds denominated in US dollars (notional amount of USD 5.0 billion) and USD 2.1 billion from the issuance of a sustainability-linked bond denominated in euro (notional amount of EUR 1.85 billion) and cash inflows of USD 3.2 billion from the net increase in current financial debts. These cash inflows were partly offset by cash outflows of USD 7.0 billion for the dividend payment, USD 2.0 billion for the repayment of two US dollar bonds at maturity, USD 0.2 billion net payments for lease liabilities, USD 0.2 billion for net treasury share transaction and USD 0.1 billion for other financing cash outflows, net.
In the prior year period, net cash flows used in financing activities from continuing operations of USD 15.7 billion mainly included the cash outflows of USD 6.6 billion for the dividend payment, USD 5.3 billion for the net treasury share transactions (mainly related to the up-to USD 5 billion share buyback) and net cash outflows of USD 3.1 billion for non-current financial debts (mainly driven by the repayment at
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maturity of a US dollar bond of USD 3.0 billion). The net repayments of current financial debts amounted to USD 0.5 billion. Payment for lease liabilities, net resulted in a net cash outflow of USD 0.2 billion.
Net cash inflows from financing activities from discontinued operations in the prior year period amounted to USD 3.3 billion, which included mainly the cash inflows of USD 3.5 billion from Alcon borrowings, partly offset by USD 0.2 billion payments for transaction costs.
Free cash flow from continuing operations amounted to USD 8.3 billion (-12%) compared to USD 9.4 billion in the prior year period, primarily as higher operating income adjusted for non-cash items was more than offset by payments related to legal settlements and lower divestment proceeds.
Balance sheet
In December 31, 2019, the assets and liabilities of the Sandoz US generic oral solids and dermatology businesses were reported as current assets and liabilities held for sale in the consolidated balance sheet. Novartis decided to retain the Sandoz US generic oral solids and dermatology businesses in March 2020, after mutual agreement with Aurobindo to terminate the transaction. This decision was taken as approval from the U.S. Federal Trade Commission for the transaction was not obtained within the agreed timelines. As such, these assets and liabilities are reclassified to their respective consolidated balance sheet lines as from March 31, 2020, the prior year consolidated balance sheet is not restated (see Notes 2 and 3).
Assets
Total non-current assets of USD 100.7 billion at September 30, 2020, increased by USD 11.8 billion compared to December 31, 2019. Intangible assets other than goodwill increased by USD 8.1 billion mainly due to the acquisitions of The Medicines Company and of the Japanese business of Aspen Global Incorporated, net additions, favorable currency translation adjustments and the reclassification of the intangible assets of the disposal group held for sale of USD 0.3 billion, partially offset by amortization and impairments. Goodwill increased by USD 3.0 billion and deferred tax assets by USD 0.6 billion mainly due to the acquisition of The Medicines Company and favorable currency translation adjustments. Property, plant and equipment decreased by USD 0.4 billion, as the increase due to net additions, the reclassification of the property, plant and equipment of the disposal group held for sale of USD 0.1 billion and favorable currency translation adjustments were more than offset by depreciation and impairments. Right-of-use assets were broadly in line with December 31, 2019. Investments in associated companies increased by USD 0.4 billion primarily due to favorable currency translation adjustments, as income from associated companies was largely offset by dividends received. Other non-current assets increased by USD 0.1 billion mainly due to an increase in the prepaid benefit costs of USD 0.1 billion resulting from actuarial gains, primarily from a valuation impact on plan assets, partly offset by changes in discount rates used to calculate the actuarial defined benefit obligations.
Total current assets of USD 29.0 billion at September 30, 2020, decreased by USD 0.5 billion compared to December 31, 2019. Marketable securities, commodities, time deposits, and derivative financial instruments increased by USD 1.5 billion, mainly due to investment of a portion of the September 16, 2020 issuance of the euro denominated sustainability-linked bond. Inventories increased by USD 1.2 billion, which includes USD 0.2 billion from the reclassification of the inventory of the disposal group held for sale. Cash and cash equivalents and trade receivables decreased by USD 2.1 billion and USD 0.2 billion respectively. Other current assets and income tax receivables remained broadly in line with December 31, 2019.
Liabilities
Total non-current liabilities of USD 43.3 billion increased by USD 8.7 billion compared to December 31, 2019. Long-term financial debts increased by USD 6.1 billion, mainly driven by the issuance of a euro denominated sustainability-linked bond for a notional amount of EUR 1.85 billion (USD 2.2 billion), and the issuance of US dollar denominated bonds for a notional amount of USD 5.0 billion. This was partly offset by the reclassification from non-current to current financial debt of a EUR 1.25 billion (USD 1.4
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billion) bond due in 2021. Deferred tax liabilities increased by USD 1.6 billion mainly due to the acquisition of The Medicines Company. Provisions and other non-current liabilities increased by USD 1.0 billion, primarily from a USD 0.8 billion increase in defined benefit pension plans and other post-employment benefits liabilities, mainly due to USD 0.6 billion actuarial losses primarily from changes in discount rates used to calculate the actuarial defined benefit obligations, partly offset by a valuation impact on plan assets. Lease liabilities were broadly in line compared to December 31, 2019.
Total current liabilities of USD 31.8 billion increased by USD 3.6 billion compared to December 31, 2019. Financial debts and derivative financial instruments increased by USD 2.7 billion, due to the reclassification from non-current to current financial debt of a EUR 1.25 billion (USD 1.4 billion) bond due in 2021 and higher short-term borrowings, partly offset by the repayment at maturity of two US dollar bonds totaling USD 2.0 billion. Provisions and other current liabilities increased by USD 1.1 billion mainly due to a USD 0.9 billion treasury share repurchase obligation under a share buyback trading plan. Current income tax liabilities increased by USD 0.5 billion. Trade payables decreased by USD 0.7 billion. Lease liabilities were broadly in line compared to December 31, 2019.
Group equity
The Group’s equity decreased by USD 1.0 billion to USD 54.6 billion at September 30, 2020 compared to December 31, 2019. This decrease was mainly due to the cash-dividend payment of USD 7.0 billion, purchase of treasury shares of USD 1.5 billion, increase in the treasury share repurchase obligation under a share buyback trading plan of USD 0.9 billion and net actuarial losses of USD 0.5 billion. This was partially offset by net income of USD 6.0 billion, the net effect of the exercise of options and employee transactions of USD 0.8 billion, equity-based compensation of USD 0.6 billion and favorable currency translation differences of USD 1.5 billion.
Net debt and debt/equity ratio
The Group’s liquidity amounted to USD 10.9 billion at September 30, 2020, compared to USD 11.4 billion at December 31, 2019. Total non-current and current financial debts, including derivatives, amounted to USD 36.2 billion at September 30, 2020, compared to USD 27.4 billion at December 31, 2019. The debt/equity ratio increased to 0.66:1 at September 30, 2020, compared to 0.49:1 at December 31, 2019. The net debt increased to USD 25.4 billion at September 30, 2020, compared to USD 15.9 billion at December 31, 2019.
Group liquidity
We continuously track our liquidity positions and assets / liabilities profile. We have a strong balance sheet and related funding capabilities to meet our funding needs. The Group has not experienced liquidity or cash flow disruptions during the first nine months of 2020 due to COVID-19 pandemic, and maintains a cash and cash equivalents position of USD 9.0 billion as at September 30, 2020. We believe that our strong credit rating allows for continued access to short term funding in the US commercial paper market. The Group further has a committed credit facility of USD 6.0 billion as a backstop for the US commercial paper program, which was undrawn as of September 30, 2020, providing a further source of liquidity if needed. Novartis is well positioned to meet its ongoing financial obligations and has sufficient liquidity to support our normal business activities.
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Innovation Review
Benefiting from our continued focus on innovation, Novartis has one of the industry’s most innovative and inventive pipelines with more than 160 projects in clinical development.
Selected Innovative Medicines approvals: US, EU and Japan in Q3
Product | Active ingredient/ Descriptor | Indication | Region |
Cosentyx | secukinumab | Non-radiographic axial spondyloarthritis | JP – Aug |
Kesimpta | ofatumumab | relapsing multiple sclerosis | US – Aug |
Piqray | alpelisib | PIK3CA mutant HR+, HER2 (-) postmenopausal adv BC 2nd line (+fulvestrant) | EU – Jul |
Xolair | omalizumab | Nasal Polyps | EU – Aug |
Selected Innovative Medicines projects awaiting regulatory decisions
Completed submissions | |||||
Product | Indication | US | EU | Japan | News update |
Entresto | Chronic heart failure with preserved ejection fraction | Q2 2020 | - Filing accepted by FDA in June 2020 | ||
Leqvio (Inclisiran) | Hyperlipidemia | Q4 2019 | Q1 2020 | - Phase III ORION-10 and -11 showed highly consistent efficacy, tolerability and safety profile over 17 months on twice-yearly subcutaneous dosing - Positive CHMP opinion received in October 2020 | |
OMB157 (Kesimpta in US) | Relapsing Multiple Sclerosis | Approved | Q1 2020 | Q3 2020 | - Phase III ASCLEPIOS trials showed newly diagnosed, treatment-naïve patients experienced reductions in annualized relapse rates, MRI lesion activity and reductions in time to disability worsening |
SEG101 (Adakveo in US) | Sickle cell disease | Approved | Q2 2019 | - Positive CHMP opinion received in July 2020 | |
Xolair | Nasal polyps | Q3 2019 | Approved | - EC approval in August 2020 |
Selected Innovative Medicines pipeline projects
Project/ Compound | Potential indication/ Disease area | First planned submissions | Current Phase | News update |
ABL001 (asciminib) | Chronic myeloid leukemia 3rd line | 2021 | III | - Fast Track Designation granted by FDA - Orphan Designation EMA - ASCEMBL Phase III study met its primary endpoint of statistically significant superiority vs. bosutinib in major molecular response rate at 24 weeks |
ACZ885 (canakinumab) | Adjuvant NSCLC | 2023 | III | - Enrollment ongoing |
NSCLC, 1st line | 2021 | III | - Enrollment complete - Depending on timing of final read-out, submission may move to early 2022 | |
NSCLC, 2nd line | 2021 | III | - Enrollment complete | |
Aimovig | Pediatric migraine | ≥2024 | III | |
AVXS-101 | Spinal Muscular Atrophy (IT formulation) | tbc based on FDA feedback | III | - The FDA has acknowledged the potential of AVXS-101 IT in this patient population and recommends a pivotal confirmatory study to |
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Project/ Compound | Potential indication/ Disease area | First planned submissions | Current Phase | News update |
supplement the existing STRONG data and further support the regulatory submission for AVXS-101 IT | ||||
AVXS-201 | Rett syndrome | ≥2024 | I | - In 2019 the IND application was withdrawn and additional preclinical studies were initiated to support a revised data package |
Beovu | Diabetic macular edema | 2021 | III | - Phase III KITE study achieved its primary endpoint of non-inferiority to aflibercept 2mg |
Retinal vein occlusion | 2023 | III | ||
Diabetic retinopathy | 2023 | III | ||
BYL719 (alpelisib) | PROS (PIK3CA-related overgrowth spectrum) | 2021 | II | - Planned US filing based on RWE data - Approx. 6 months delay from Q4 2020 due to COVID constraints |
HER2+ adv breast cancer | ≥2024 | III | - Approx. 6 months delay due to COVID constraints | |
Triple negative breast cancer | 2023 | III | - Trial enrolled first patient in June 2020 | |
Head and neck squamous cell carcinoma 2L/3L | ≥2024 | III | ||
Ovarian Cancer | 2023 | III | ||
CEE321 | Atopic dermatitis | ≥2024 | I | |
CFZ533 (iscalimab) | Renal Tx | 2023 | II | |
Liver Tx | ≥2024 | II | ||
Sjögren’s syndrome | ≥2024 | II | ||
Coartem | Malaria uncomplicated, <5kg patients | ≥2024 | III | |
Cosentyx | Hidradenitis suppurativa | 2022 | III | |
Ankylosing spondylitis head-to-head vs. adalimumab | 2022 | III | ||
Axial spondyloarthritis IV regimen | 2022 | III | ||
Giant cell arteritis | ≥2024 | II | ||
Lichen Planus | ≥2024 | II | - Phase II Study PRELUDE (NCT04300296) started | |
Lupus Nephritis | ≥2024 | III | - Phase III Study SELUNE (NCT04181762) started | |
CPK850 | Retinitis pigmentosa | ≥2024 | II | |
CSJ117 | Asthma | ≥2024 | II | - Phase IIb study (NCT04410523) started |
ECF843 | Dry eye | 2023 | II | |
Entresto | Post-acute myocardial infarction | 2021 | III | |
Jakavi | Acute graft-versus-host disease (GvHD) | 2021 | III | |
Chronic GvHD | 2021 | III | - REACH-3 trial demonstrated superior overall response rate in patients with chronic GvHD compared to best available therapy. Study also met key secondary endpoints, significantly improving failure-free survival and patient-reported symptoms | |
KAE609 (cipargamin) | Malaria uncomplicated | ≥2024 | II | |
Malaria severe | ≥2024 | II | ||
KAF156 | Malaria uncomplicated | ≥2024 | II |
21
Project/ Compound | Potential indication/ Disease area | First planned submissions | Current Phase | News update |
(ganaplacide) | ||||
Kisqali + endocrine therapy | HR+/HER2- early BC (adjuvant) | 2023 | III | - Protocol amendment to increase sample size (4000->5000) pushes expected final analysis (event-driven trial) to end 2022, and submission to 2023 |
Leqvio (Inclisiran) | Secondary prevention of cardiovascular events in patients with elevated levels of LDLC | ≥2024 | III | |
Kymriah (tisagenlecleucel) | r/r Follicular lymphoma | 2021 | II | - ELARA trial demonstrated clinically meaningful benefit in patients with relapsed or refractory (r/r) follicular lymphoma (FL) as measured by complete response rate |
r/r DLBCL in 1st relapse | 2021 | III | ||
+ pembrolizumab | r/r DLBCL | ≥2024 | II | |
LJC242 (tropifexor + cenicriviroc) | Non-alcoholic steatohepatitis (NASH) | ≥2024 | II | |
LJN452 (tropifexor) | Non-alcoholic steatohepatitis (NASH) | ≥2024 | II | - FDA Fast Track designation |
LMI070 (branaplam) | Spinal Muscular Atrophy | ≥2024 | II | - FDA, EMA Orphan designation received - Dose ranging study ongoing |
Huntington’s disease | ≥2024 | I | - FDA Orphan designation received | |
LNA043 | Osteoarthritis | ≥2024 | II | |
LNP023 (iptacopan) | Paroxysmal nocturnal hemoglobinuria | 2023 | II | - Positive results from Phase II study presented at EBMT - FDA, EMA Orphan designation received |
IgA nephropathy | 2023 | II | - EMA Orphan designation received | |
Membranous nephropathy | ≥2024 | II | ||
C3 glomerulopathy | 2023 | II | - FDA, EMA Orphan designation received - EU PRIME designation received - Positive results from Phase II study presented at American Society of Nephrology | |
Atypical haemolytic uraemic syndrome | 2023 | II | ||
LOU064 (remibrutinib) | Chronic Spontaneous Urticaria / Chronic Idiopathic Urticaria | ≥2024 | II | - Readout expected in 2021 |
Sjögren’s syndrome | ≥2024 | II | ||
Lutathera | GEP-NET 1L G3 | 2023 | III | |
177Lu-PSMA-617 | Metastatic castration-resistant prostate cancer | 2021 | III | - Event-driven trial; readout expected in H1 2021 |
177Lu-PSMA-R2 | Prostate cancer | ≥2024 | I | |
177Lu-NeoB | Multiple Solid Tumors | ≥2024 | I | |
LXE408 | Visceral leishmaniasis | ≥2024 | II | |
MBG453 (sabatolimab) | Myelodysplastic syndrome | 2021 | III | - Study initiated in June 2020 |
Unfit AML | ≥2024 | II | - Study initiated in September 2020 | |
PDR001 + Tafinlar + Mekinist | Metastatic BRAF V600+ melanoma | NA | III | - COMBI-i Phase III study did not meet its primary endpoint - Efficacy data achieved in the control arm among patients treated with Tafinlar + Mekinist represent the longest progression-free |
22
Project/ Compound | Potential indication/ Disease area | First planned submissions | Current Phase | News update |
survival results (PFS) observed across multiple Phase III studies | ||||
PDR001 Combo | Malignant melanoma | ≥2024 | II | - Enrollment ongoing |
QBW251 | COPD | ≥2024 | II | - Phase IIb recruitment ongoing |
QGE031 (ligelizumab) | Chronic Spontaneous Urticaria / Chronic Idiopathic Urticaria | 2022 | III | - Enrollment completed - Submission delayed by 5 months due to COVID 19 |
SAF312 | Chronic ocular surface pain | ≥2024 | II | |
Tabrecta (capmatinib) | Solid Tumors | ≥2024 | II | |
TQJ230 (pelacarsen) | Secondary prevention of cardiovascular events in patients with elevated levels of lipoprotein(a) | ≥2024 | III | - Enrollment ongoing - FDA Fast Track granted |
UNR844 | Presbyopia | ≥2024 | II | |
VAY736 (ianalumab) | Auto-immune hepatitis | ≥2024 | II | |
Sjögren’s syndrome | ≥2024 | II | - FDA Fast Track designation | |
VPM087 (gevokizumab) | 1st line colorectal cancer | ≥2024 | I | |
Xolair | Food Allergy | 2022 | III | |
Selected Sandoz approvals and pipeline projects
Project/ Compound | Potential indication/ Disease area | News update |
GP2411 (denosumab) | Osteoporosis, skeletal-related in bone met. pts (same as originator) | - In Phase III - First patient enrolled July 2019 |
Insulin glargine, lispro, aspart | Diabetes | - Collaboration with Gan & Lee |
natalizumab | Multiple sclerosis and Crohn’s disease | - Collaboration Polpharma Biologics |
trastuzumab | HER2-positive cancer tumors | - Collaboration EirGenix |
23
Condensed interim consolidated financial statements
Consolidated income statements
Third quarter (unaudited)
(USD millions unless indicated otherwise) | Note | Q3 2020 | Q3 2019 | ||||
Net sales to third parties from continuing operations | 9 | 12 259 | 12 172 | ||||
Other revenues | 9 | 279 | 310 | ||||
Cost of goods sold | -3 753 | -3 776 | |||||
Gross profit from continuing operations | 8 785 | 8 706 | |||||
Selling, general and administration | -3 419 | -3 549 | |||||
Research and development | -2 146 | -2 199 | |||||
Other income | 406 | 196 | |||||
Other expense | -1 214 | -796 | |||||
Operating income from continuing operations | 2 412 | 2 358 | |||||
Income from associated companies | 226 | 253 | |||||
Interest expense | -209 | -216 | |||||
Other financial income and expense | -19 | 12 | |||||
Income before taxes from continuing operations | 2 410 | 2 407 | |||||
Taxes | -478 | -366 | |||||
Net income from continuing operations | 1 932 | 2 041 | |||||
Net income | 1 932 | 2 041 | |||||
Attributable to: | |||||||
Shareholders of Novartis AG | 1 935 | 2 042 | |||||
Non-controlling interests | -3 | -1 | |||||
Weighted average number of shares outstanding – Basic (million) | 2 285 | 2 272 | |||||
Basic earnings per share from continuing operations (USD) 1 | 0.85 | 0.90 | |||||
Total basic earnings per share (USD) 1 | 0.85 | 0.90 | |||||
Weighted average number of shares outstanding – Diluted (million) | 2 302 | 2 297 | |||||
Diluted earnings per share from continuing operations (USD) 1 | 0.84 | 0.89 | |||||
Total diluted earnings per share (USD) 1 | 0.84 | 0.89 | |||||
1 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG. |
24
Consolidated income statements
Nine months to September 30 (unaudited)
(USD millions unless indicated otherwise) | Note | 9M 2020 | 9M 2019 | ||||
Net sales to third parties from continuing operations | 9 | 35 889 | 35 042 | ||||
Sales to discontinued segment | 53 | ||||||
Net sales from continuing operations | 35 889 | 35 095 | |||||
Other revenues | 9 | 979 | 866 | ||||
Cost of goods sold | -10 904 | -10 433 | |||||
Gross profit from continuing operations | 25 964 | 25 528 | |||||
Selling, general and administration | -10 273 | -10 464 | |||||
Research and development | -6 647 | -6 549 | |||||
Other income | 1 099 | 1 388 | |||||
Other expense | -2 635 | -2 640 | |||||
Operating income from continuing operations | 7 508 | 7 263 | |||||
Income from associated companies | 532 | 509 | |||||
Interest expense | -668 | -647 | |||||
Other financial income and expense | -53 | 56 | |||||
Income before taxes from continuing operations | 7 319 | 7 181 | |||||
Taxes | -1 347 | -1 163 | |||||
Net income from continuing operations | 5 972 | 6 018 | |||||
Net loss from discontinued operations before gain on distribution of Alcon Inc. to Novartis AG shareholders | 10 | -101 | |||||
Gain on distribution of Alcon Inc. to Novartis AG shareholders | 3, 10 | 4 691 | |||||
Net income from discontinued operations | 4 590 | ||||||
Net income | 5 972 | 10 608 | |||||
Attributable to: | |||||||
Shareholders of Novartis AG | 5 978 | 10 607 | |||||
Non-controlling interests | -6 | 1 | |||||
Weighted average number of shares outstanding – Basic (million) | 2 282 | 2 298 | |||||
Basic earnings per share from continuing operations (USD) 1 | 2.62 | 2.62 | |||||
Basic earnings per share from discontinued operations (USD) 1 | 2.00 | ||||||
Total basic earnings per share (USD) 1 | 2.62 | 4.62 | |||||
Weighted average number of shares outstanding – Diluted (million) | 2 300 | 2 323 | |||||
Diluted earnings per share from continuing operations (USD) 1 | 2.60 | 2.59 | |||||
Diluted earnings per share from discontinued operations (USD) 1 | 1.98 | ||||||
Total diluted earnings per share (USD) 1 | 2.60 | 4.57 | |||||
1 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG. |
25
Consolidated statements of comprehensive income
Third quarter (unaudited)
(USD millions) | Q3 2020 | Q3 2019 | |||
Net income | 1 932 | 2 041 | |||
Other comprehensive income to be eventually recycled into the consolidated income statement: | |||||
Novartis share of other comprehensive income recognized by associated companies, net of taxes | -44 | -40 | |||
Net investment hedge | -97 | 81 | |||
Currency translation effects | 1 111 | -700 | |||
Total of items to eventually recycle | 970 | -659 | |||
Other comprehensive income never to be recycled into the consolidated income statement: | |||||
Actuarial losses from defined benefit plans, net of taxes | -189 | -418 | |||
Fair value adjustments on equity securities, net of taxes | -53 | -99 | |||
Total of items never to be recycled | -242 | -517 | |||
Total comprehensive income | 2 660 | 865 | |||
Attributable to: | |||||
Shareholders of Novartis AG | 2 663 | 868 | |||
Continuing operations | 2 663 | 868 | |||
Non-controlling interests | -3 | -3 | |||
Nine months to September 30 (unaudited)
(USD millions) | 9M 2020 | 9M 2019 | |||
Net income | 5 972 | 10 608 | |||
Other comprehensive income to be eventually recycled into the consolidated income statement: | |||||
Fair value adjustments on debt securities, net of taxes | 1 | ||||
Fair value adjustments on deferred cash flow hedges, net of taxes | 1 | ||||
Total fair value adjustments on financial instruments, net of taxes | 2 | ||||
Novartis share of other comprehensive income recognized by associated companies, net of taxes | -56 | -94 | |||
Net investment hedge | -98 | 93 | |||
Currency translation effects 1 | 1 493 | -511 | |||
Total of items to eventually recycle | 1 339 | -510 | |||
Other comprehensive income never to be recycled into the consolidated income statement: | |||||
Actuarial losses from defined benefit plans, net of taxes 2 | -482 | -1 308 | |||
Fair value adjustments on equity securities, net of taxes | 46 | -25 | |||
Total of items never to be recycled | -436 | -1 333 | |||
Total comprehensive income | 6 875 | 8 765 | |||
Attributable to: | |||||
Shareholders of Novartis AG | 6 882 | 8 766 | |||
Continuing operations | 6 882 | 4 189 | |||
Discontinued operations | 4 577 | ||||
Non-controlling interests | -7 | -1 | |||
1 In 2019, cumulative currency translation gains of USD 123 million were recycled into the consolidated income statement as a result of the Alcon spin-off (see Notes 2, 3 and 10). | |||||
2 Included in 2019 is a USD -358 million impact related to the revaluation of deferred tax assets on Swiss pension plans that were previously recognized through other comprehensive income. This revaluation resulted from the Swiss canton Basel-Stadt tax reform, enacted in February 2019. |
26
Consolidated balance sheets
(USD millions) | Note | Sep 30, 2020 (unaudited) | Dec 31, 2019 (audited) | ||||
Assets | |||||||
Non-current assets | |||||||
Property, plant and equipment | 9 | 11 711 | 12 069 | ||||
Right-of-use assets | 1 626 | 1 677 | |||||
Goodwill | 9 | 29 532 | 26 524 | ||||
Intangible assets other than goodwill | 9 | 36 883 | 28 787 | ||||
Investments in associated companies | 9 044 | 8 644 | |||||
Deferred tax assets | 8 500 | 7 909 | |||||
Financial assets | 2 559 | 2 518 | |||||
Other non-current assets | 850 | 738 | |||||
Total non-current assets | 100 705 | 88 866 | |||||
Current assets | |||||||
Inventories | 7 136 | 5 982 | |||||
Trade receivables | 8 073 | 8 301 | |||||
Income tax receivables | 226 | 254 | |||||
Marketable securities, commodities, time deposits and derivative financial instruments | 1 876 | 334 | |||||
Cash and cash equivalents | 8 994 | 11 112 | |||||
Other current assets | 2 668 | 2 680 | |||||
Total current assets without disposal group | 28 973 | 28 663 | |||||
Assets of disposal group held for sale | 3 | 841 | |||||
Total current assets | 28 973 | 29 504 | |||||
Total assets | 129 678 | 118 370 | |||||
Equity and liabilities | |||||||
Equity | |||||||
Share capital | 913 | 936 | |||||
Treasury shares | -44 | -80 | |||||
Reserves | 53 615 | 54 618 | |||||
Issued share capital and reserves attributable to Novartis AG shareholders | 54 484 | 55 474 | |||||
Non-controlling interests | 70 | 77 | |||||
Total equity | 54 554 | 55 551 | |||||
Liabilities | |||||||
Non-current liabilities | |||||||
Financial debts | 26 497 | 20 353 | |||||
Lease liabilities | 1 684 | 1 703 | |||||
Deferred tax liabilities | 7 427 | 5 867 | |||||
Provisions and other non-current liabilities | 7 678 | 6 632 | |||||
Total non-current liabilities | 43 286 | 34 555 | |||||
Current liabilities | |||||||
Trade payables | 4 705 | 5 424 | |||||
Financial debts and derivative financial instruments | 9 727 | 7 031 | |||||
Lease liabilities | 267 | 246 | |||||
Current income tax liabilities | 2 714 | 2 194 | |||||
Provisions and other current liabilities | 14 425 | 13 338 | |||||
Total current liabilities without disposal group | 31 838 | 28 233 | |||||
Liabilities of disposal group held for sale | 3 | 31 | |||||
Total current liabilities | 31 838 | 28 264 | |||||
Total liabilities | 75 124 | 62 819 | |||||
Total equity and liabilities | 129 678 | 118 370 | |||||
27
Consolidated statements of changes in equity
Third quarter (unaudited)
(USD millions) | Note | Share capital | Treasury shares | Retained earnings | Total value adjustments | Issued share capital and reserves attributable to Novartis shareholders | Non- controlling interests | Total equity | |||||||||
Total equity at July 1, 2020 | 913 | -37 | 57 495 | -4 559 | 53 812 | 73 | 53 885 | ||||||||||
Net income | 1 935 | 1 935 | -3 | 1 932 | |||||||||||||
Other comprehensive income | -44 | 772 | 728 | 0 | 728 | ||||||||||||
Total comprehensive income | 1 891 | 772 | 2 663 | -3 | 2 660 | ||||||||||||
Purchase of treasury shares | -8 | -1 302 | -1 310 | -1 310 | |||||||||||||
Exercise of options and employee transactions | -17 | -17 | -17 | ||||||||||||||
Equity-based compensation | 1 | 187 | 188 | 188 | |||||||||||||
Taxes on treasury share transactions | 1 | 1 | 1 | ||||||||||||||
Increase of treasury share repurchase obligation under a share buyback trading plan | 4.1 | -857 | -857 | -857 | |||||||||||||
Fair value adjustments on financial assets sold | 1 | -1 | |||||||||||||||
Other movements | 4.2 | 4 | 4 | 4 | |||||||||||||
Total of other equity movements | -7 | -1 983 | -1 | -1 991 | -1 991 | ||||||||||||
Total equity at September 30, 2020 | 913 | -44 | 57 403 | -3 788 | 54 484 | 70 | 54 554 | ||||||||||
(USD millions) | Note | Share capital | Treasury shares | Retained earnings | Total value adjustments | Issued share capital and reserves attributable to Novartis shareholders | Non- controlling interests | Total equity | |||||||||
Total equity at July 1, 2019 | 936 | -67 | 55 645 | -5 088 | 51 426 | 78 | 51 504 | ||||||||||
Net income | 2 042 | 2 042 | -1 | 2 041 | |||||||||||||
Other comprehensive income | -40 | -1 134 | -1 174 | -2 | -1 176 | ||||||||||||
Total comprehensive income | 2 002 | -1 134 | 868 | -3 | 865 | ||||||||||||
Purchase of treasury shares | -14 | -2 521 | -2 535 | -2 535 | |||||||||||||
Equity-based compensation | 1 | 193 | 194 | 194 | |||||||||||||
Taxes on treasury share transactions | -4 | -4 | -4 | ||||||||||||||
Decrease of treasury share repurchase obligation under a share buyback trading plan | 4.1 | 2 573 | 2 573 | 2 573 | |||||||||||||
Changes in non-controlling interests | -1 | -1 | |||||||||||||||
Fair value adjustments on financial assets sold | 38 | -38 | |||||||||||||||
Other movements | 4.2 | 2 | 2 | 2 | |||||||||||||
Total of other equity movements | -13 | 281 | -38 | 230 | -1 | 229 | |||||||||||
Total equity at September 30, 2019 | 936 | -80 | 57 928 | -6 260 | 52 524 | 74 | 52 598 | ||||||||||
28
Consolidated statements of changes in equity
Nine months to September 30, 2020 (unaudited)
(USD millions) | Note | Share capital | Treasury shares | Retained earnings | Total value adjustments | Issued share capital and reserves attributable to Novartis shareholders | Non- controlling interests | Total equity | |||||||||
Total equity at January 1, 2020 | 936 | -80 | 59 275 | -4 657 | 55 474 | 77 | 55 551 | ||||||||||
Net income | 5 978 | 5 978 | -6 | 5 972 | |||||||||||||
Other comprehensive income | -56 | 960 | 904 | -1 | 903 | ||||||||||||
Total comprehensive income | 5 922 | 960 | 6 882 | -7 | 6 875 | ||||||||||||
Dividends | -6 987 | -6 987 | -6 987 | ||||||||||||||
Purchase of treasury shares | -9 | -1 451 | -1 460 | -1 460 | |||||||||||||
Reduction of share capital | -23 | 31 | -8 | ||||||||||||||
Exercise of options and employee transactions | 8 | 798 | 806 | 806 | |||||||||||||
Equity-based compensation | 6 | 547 | 553 | 553 | |||||||||||||
Shares delivered to Alcon employees as a result of the Alcon spin-off | 0 | 29 | 29 | 29 | |||||||||||||
Taxes on treasury share transactions | 31 | 31 | 31 | ||||||||||||||
Increase of treasury share repurchase obligation under a share buyback trading plan | 4.1 | -857 | -857 | -857 | |||||||||||||
Fair value adjustments on financial assets sold | 91 | -91 | |||||||||||||||
Other movements | 4.2 | 13 | 13 | 13 | |||||||||||||
Total of other equity movements | -23 | 36 | -7 794 | -91 | -7 872 | -7 872 | |||||||||||
Total equity at September 30, 2020 | 913 | -44 | 57 403 | -3 788 | 54 484 | 70 | 54 554 | ||||||||||
29
Consolidated statements of changes in equity
Nine months to September 30, 2019 (unaudited)
(USD millions) | Note | Share capital | Treasury shares | Retained earnings | Total value adjustments | Issued share capital and reserves attributable to Novartis shareholders | Non- controlling interests | Total equity | |||||||||
Total equity at January 1, 2019, as previously reported | 944 | -69 | 82 191 | -4 452 | 78 614 | 78 | 78 692 | ||||||||||
Impact of change in accounting policies | 4.3 | 3 | 3 | 3 | |||||||||||||
Restated equity at January 1, 2019 | 944 | -69 | 82 194 | -4 452 | 78 617 | 78 | 78 695 | ||||||||||
Net income | 10 607 | 10 607 | 1 | 10 608 | |||||||||||||
Other comprehensive income | -94 | -1 747 | -1 841 | -2 | -1 843 | ||||||||||||
Total comprehensive income | 10 513 | -1 747 | 8 766 | -1 | 8 765 | ||||||||||||
Dividends | -6 645 | -6 645 | -6 645 | ||||||||||||||
Dividend in kind | 2, 3 | -23 434 | -23 434 | -23 434 | |||||||||||||
Purchase of treasury shares | -31 | -5 476 | -5 507 | -5 507 | |||||||||||||
Reduction of share capital | -8 | 12 | -4 | ||||||||||||||
Exercise of options and employee transactions | 3 | 197 | 200 | 200 | |||||||||||||
Equity-based compensation | 5 | 636 | 641 | 641 | |||||||||||||
Shares delivered to Alcon employees as a result of the Alcon spin-off | 32 | 32 | 32 | ||||||||||||||
Taxes on treasury share transactions | 4.4 | -189 | -189 | -189 | |||||||||||||
Decrease of treasury share repurchase obligation under a share buyback trading plan | 4.1 | 284 | 284 | 284 | |||||||||||||
Transaction costs, net of taxes | 4.5 | -253 | -253 | -253 | |||||||||||||
Changes in non-controlling interests | -1 | -1 | |||||||||||||||
Fair value adjustments on financial assets sold | 57 | -57 | |||||||||||||||
Fair value adjustments related to divestments | 4 | -4 | |||||||||||||||
Impact of change in ownership of consolidated entities | -3 | -3 | -2 | -5 | |||||||||||||
Other movements | 4.2 | 15 | 15 | 15 | |||||||||||||
Total of other equity movements | -8 | -11 | -34 779 | -61 | -34 859 | -3 | -34 862 | ||||||||||
Total equity at September 30, 2019 | 936 | -80 | 57 928 | -6 260 | 52 524 | 74 | 52 598 | ||||||||||
30
Consolidated statements of cash flows
Third quarter (unaudited)
(USD millions) | Note | Q3 2020 | Q3 2019 | ||||
Net income from continuing operations | 1 932 | 2 041 | |||||
Adjustments to reconcile net income from continuing operations to net cash flows from operating activities from continuing operations | |||||||
Reversal of non-cash items and other adjustments | 6.1 | 2 682 | 2 271 | ||||
Interest received | 5 | 32 | |||||
Interest paid | -161 | -134 | |||||
Other financial receipts | 27 | 51 | |||||
Other financial payments | -9 | -9 | |||||
Taxes paid | 6.2 | -316 | -235 | ||||
Net cash flows from operating activities from continuing operations before working capital and provision changes | 4 160 | 4 017 | |||||
Payments out of provisions and other net cash movements in non-current liabilities | -968 | -146 | |||||
Change in net current assets and other operating cash flow items | -36 | 691 | |||||
Net cash flows from operating activities from continuing operations | 3 156 | 4 562 | |||||
Total net cash flows from operating activities | 3 156 | 4 562 | |||||
Purchases of property, plant and equipment | -279 | -357 | |||||
Proceeds from sale of property, plant and equipment | 2 | -3 | |||||
Purchases of intangible assets | -348 | -205 | |||||
Proceeds from sale of intangible assets | 99 | 140 | |||||
Purchases of financial assets | -35 | -69 | |||||
Proceeds from sale of financial assets | 108 | 565 | |||||
Purchases of other non-current assets | -6 | -10 | |||||
Proceeds from sale of other non-current assets | 0 | 1 | |||||
Acquisitions and divestments of interests in associated companies, net | -2 | -1 | |||||
Acquisitions and divestments of businesses, net | 6.3 | -110 | -3 460 | ||||
Purchases of marketable securities and commodities | -1 500 | -69 | |||||
Proceeds from sale of marketable securities and commodities | 46 | 67 | |||||
Net cash flows used in investing activities from continuing operations | -2 025 | -3 401 | |||||
Net cash flows used in/from investing activities from discontinued operations | 10 | -20 | 3 | ||||
Total net cash flows used in investing activities | -2 045 | -3 398 | |||||
Acquisitions of treasury shares | -924 | -2 940 | |||||
Proceeds from exercised options and other treasury share transactions | 5 | ||||||
Increase in non-current financial debts | 2 181 | 93 | |||||
Repayments of non-current financial debts | 0 | -186 | |||||
Change in current financial debts | 710 | 423 | |||||
Payment of lease liabilities, net | -75 | -92 | |||||
Impact of change in ownership of consolidated entities | -1 | ||||||
Other financing cash flows, net | 19 | 5 | |||||
Net cash flows from/used in financing activities from continuing operations | 1 911 | -2 693 | |||||
Net cash flows used in financing activities from discontinued operations | 10 | -11 | -20 | ||||
Total net cash flows from/used in financing activities | 1 900 | -2 713 | |||||
Net change in cash and cash equivalents before effect of exchange rate changes | 3 011 | -1 549 | |||||
Effect of exchange rate changes on cash and cash equivalents | 66 | -64 | |||||
Total net change in cash and cash equivalents | 3 077 | -1 613 | |||||
Cash and cash equivalents at July 1 | 5 917 | 9 991 | |||||
Cash and cash equivalents at September 30 | 8 994 | 8 378 | |||||
31
Consolidated statements of cash flows
Nine months to September 30 (unaudited)
(USD millions) | Note | 9M 2020 | 9M 2019 | ||||
Net income from continuing operations | 5 972 | 6 018 | |||||
Adjustments to reconcile net income from continuing operations to net cash flows from operating activities from continuing operations | |||||||
Reversal of non-cash items and other adjustments | 6.1 | 7 884 | 6 372 | ||||
Dividends received from associated companies and others | 489 | 463 | |||||
Interest received | 42 | 172 | |||||
Interest paid | -482 | -540 | |||||
Other financial receipts | 288 | 61 | |||||
Other financial payments | -28 | -25 | |||||
Taxes paid | 6.2 | -1 215 | -1 195 | ||||
Net cash flows from operating activities from continuing operations before working capital and provision changes | 12 950 | 11 326 | |||||
Payments out of provisions and other net cash movements in non-current liabilities | -1 792 | -662 | |||||
Change in net current assets and other operating cash flow items | -1 513 | -657 | |||||
Net cash flows from operating activities from continuing operations | 9 645 | 10 007 | |||||
Net cash flows from operating activities from discontinued operations | 78 | ||||||
Total net cash flows from operating activities | 9 645 | 10 085 | |||||
Purchases of property, plant and equipment | -754 | -918 | |||||
Proceeds from sale of property, plant and equipment | 6 | 809 | |||||
Purchases of intangible assets | -808 | -703 | |||||
Proceeds from sale of intangible assets | 204 | 421 | |||||
Purchases of financial assets | -125 | -223 | |||||
Proceeds from sale of financial assets | 467 | 742 | |||||
Purchases of other non-current assets | -54 | -34 | |||||
Proceeds from sale of other non-current assets | 0 | 4 | |||||
Acquisitions and divestments of interests in associated companies, net | -6 | -4 | |||||
Acquisitions and divestments of businesses, net | 6.3 | -10 011 | -3 842 | ||||
Purchases of marketable securities and commodities | -1 845 | -189 | |||||
Proceeds from sale of marketable securities and commodities | 440 | 2 495 | |||||
Net cash flows used in investing activities from continuing operations | -12 486 | -1 442 | |||||
Net cash flows used in investing activities from discontinued operations | 10 | -125 | -1 102 | ||||
Total net cash flows used in investing activities | -12 611 | -2 544 | |||||
Dividends paid to shareholders of Novartis AG | -6 987 | -6 645 | |||||
Acquisitions of treasury shares | -1 074 | -5 530 | |||||
Proceeds from exercised options and other treasury share transactions | 846 | 205 | |||||
Increase in non-current financial debts | 7 126 | 93 | |||||
Repayments of non-current financial debts | -2 002 | -3 194 | |||||
Change in current financial debts | 3 196 | -519 | |||||
Payment of lease liabilities, net | -217 | -183 | |||||
Impact of change in ownership of consolidated entities | -6 | ||||||
Other financing cash flows, net | -123 | 76 | |||||
Net cash flows from/used in financing activities from continuing operations | 765 | -15 703 | |||||
Net cash flows used in/from financing activities from discontinued operations | 10 | -37 | 3 279 | ||||
Total net cash flows from/used in financing activities | 728 | -12 424 | |||||
Net change in cash and cash equivalents before effect of exchange rate changes | -2 238 | -4 883 | |||||
Effect of exchange rate changes on cash and cash equivalents | 120 | -10 | |||||
Total net change in cash and cash equivalents | -2 118 | -4 893 | |||||
Cash and cash equivalents at January 1 | 11 112 | 13 271 | |||||
Cash and cash equivalents at September 30 | 8 994 | 8 378 | |||||
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Notes to the Condensed Interim Consolidated Financial Statements for the three-month and nine-month period ended September 30, 2020 (unaudited)
1. Basis of preparation
These Condensed Interim Consolidated Financial Statements for the three-month and nine-month period ended September 30, 2020, were prepared in accordance with International Accounting Standard 34 Interim Financial Reporting and accounting policies set out in the 2019 Annual Report published on January 29, 2020.
2. Selected critical accounting policies
The Group’s principal accounting policies are set out in Note 1 to the Consolidated Financial Statements in the 2019 Annual Report and conform with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
The preparation of financial statements requires management to make certain estimates and assumptions, either at the balance sheet date or during the year, which affect the reported amounts of assets and liabilities, including any contingent amounts, the distribution liability recognized in connection with the distribution of Alcon Inc. to Novartis AG shareholders, as well as of revenues and expenses. Actual outcomes and results could differ from those estimates and assumptions.
As disclosed in the 2019 Annual Report, goodwill, and acquired In-Process Research & Development projects are reviewed for impairment at least annually and these, as well as all other investments in intangible assets, are reviewed for impairment whenever an event or decision occurs that raises concern about their balance sheet carrying value. The amount of goodwill and other intangible assets on the Group’s consolidated balance sheet has risen significantly in recent years, primarily from acquisitions. Impairment testing may lead to potentially significant impairment charges in the future that could have a materially adverse impact on the Group’s results of operations and financial condition.
Non-current assets held for sale or held for distribution to owners
Non-current assets are classified as assets held for sale or related to discontinued operations when their carrying amount is to be recovered principally through a sale transaction or distribution to owners and a sale or distribution to owners is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell with any resulting impairment recognized. Assets related to discontinued operations and assets of disposal group held for sale are not depreciated or amortized. The prior year consolidated balance sheet is not restated.
If in a subsequent period, the criteria for classification as held for sale are no longer met, the recoverable amount of assets and liabilities are reclassified out of assets held for sale into the respective balance sheet lines, prior year consolidated balance sheet is not restated. The cumulative amount of depreciation and amortization not recorded since the date of their classification to assets held for sale, and any required adjustments to the recoverable amounts of assets are recognized in the consolidated income statement.
Distribution of Alcon Inc. to Novartis AG shareholders
During the first quarter of 2019, at the Annual General Meeting (AGM) of Novartis AG shareholders, held on February 28, 2019, the Novartis AG shareholders approved a special distribution by way of a dividend in kind to effect the spin-off of Alcon Inc.
The February 28, 2019, shareholder approval for the spin-off required the Alcon Division and selected portions of corporate activities attributable to Alcon’s business (the “Alcon business”) to be reported as discontinued operations.
The shareholder approval to spin off the Alcon business also required the recognition of a distribution liability at the fair value of the Alcon business. The Group elected to measure the distribution liability at the fair value of the Alcon business net assets taken as a whole. The distribution liability was recognized through a reduction in retained earnings. It was required to be adjusted at each balance sheet date for changes in its estimated
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fair value, up to the date of the distribution to shareholders through retained earnings. Any resulting impairment of the business assets to be distributed would have been recognized in the consolidated income statements in “Other expense” of discontinued operations, at the date of initial recognition of the distribution liability or at subsequent dates resulting from changes of the distribution liability valuation. At the April 8, 2019 distribution settlement date, the resulting gain, which was measured as the excess amount of the distribution liability over the then-carrying value of the net assets of the business distributed, was recognized on the line “Gain on distribution of Alcon Inc. to Novartis AG shareholders” in the income statement of discontinued operations.
The recognition of the distribution liability required the use of valuation techniques for purposes of impairment testing of the Alcon business’ assets to be distributed and for the measurement of the fair value of the distribution liability. These valuations required the use of management assumptions and estimates related to the Alcon business’ future cash flows, market multiples to estimate day one market value, and control premiums to apply in estimating the Alcon business fair value. These fair value measurements were classified as “Level 3” in the fair value hierarchy. The section “—Impairment of goodwill and intangible assets” in Note 1 to the Consolidated Financial Statements of the 2019 Annual Report provides additional information on key assumptions that are highly sensitive in the estimation of fair values using valuation techniques.
Transaction costs that were directly attributable to the distribution (spin-off) of Alcon to the Novartis shareholders, and that would otherwise have been avoided, were recorded as a deduction from equity.
For additional disclosures, refer to Notes 3 and 10.
New IFRS standard effective as of January 1, 2020
IFRS 3 Business Combination amendments
The IASB issued amendments to IFRS 3 Business Combinations that revised the definition of a business, which assist entities with the evaluation of when an asset or group of assets acquired or disposed of should be considered a business. This amended standard has been applied to transactions entered into on or after January 1, 2020. The amended standard allows an entity to apply an optional concentration test, on a transaction-by-transaction basis, to evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If this optional concentration test is met, the entity may choose to consider the transaction an acquisition of an asset or set of assets. The adoption of this amended standard on January 1, 2020 did not have a significant impact on our consolidated financial statements and is not expected to have a significant impact in future periods. However, this will depend on the facts and circumstances of future transactions and if the Group decides to apply the optional concentration test in the assessment of whether an acquired set of activities and assets is or is not a business.
There are no other IFRS standards or interpretations not yet effective that would be expected to have a material impact on the Group.
3. Significant transactions
Significant transactions in 2020
Innovative Medicines – acquisition of The Medicines Company
On November 23, 2019, Novartis entered into an agreement and plan of merger (the Merger Agreement) with The Medicines Company, a US-based pharmaceutical company headquartered in Parsippany, New Jersey USA. Pursuant to the Merger Agreement, on December 5, 2019, Novartis, through a subsidiary, commenced a tender offer to acquire all outstanding shares of The Medicines Company for USD 85 per share, or a total consideration of approximately USD 9.6 billion in cash on a fully diluted basis, including the equivalent share value related to The Medicines Company’s convertible notes, in accordance with their terms. The tender offer expired on January 3, 2020, and on January 6, 2020, the acquiring subsidiary merged with and into The Medicines Company, resulting in The Medicines Company becoming an indirect wholly owned subsidiary of Novartis. Novartis financed the transaction through available cash, and short- and long-term borrowings.
The Medicines Company is focused on the development of inclisiran, a potentially first-in-class, twice yearly therapy that allows administration during patients’ routine visits to their healthcare professionals and will potentially contribute to improved patient adherence and sustained lower LDL-C levels.
The fair value of the total purchase consideration was USD 9.6 billion. The preliminary purchase price allocation resulted in net identifiable assets of approximately USD 7.1 billion, consisting of USD 8.5 billion intangible assets, USD 1.4 billion net deferred tax liabilities and goodwill of approximately USD 2.5 billion.
Results of operations since the date of acquisition were not material.
Sandoz – acquisition of the Japanese business of Aspen Global Incorporated
On November 11, 2019, Sandoz entered into an agreement for the acquisition of the Japanese business of
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Aspen Global Incorporated (AGI), a wholly owned subsidiary of Aspen Pharmacare Holdings Limited. Under the agreement, Sandoz acquired the shares in Aspen Japan K.K. and associated assets held by AGI. The transaction closed on January 31, 2020.
Aspen’s portfolio in Japan consists of off-patent medicines with a focus on anesthetics and specialty brands. The acquisition will enable Sandoz to expand its presence in the third-largest worldwide generics marketplace.
The purchase price consist of EUR 274 million (USD 303 million) upfront payment, less customary purchase price adjustment of EUR 27 million (USD 30 million), plus potential milestone payments of up to EUR 70 million (USD 77 million), which AGI is eligible to receive upon the achievement of specified milestones.
The fair value of the total purchase consideration was EUR 294 million (USD 324 million). The amount consisted of a cash payment of EUR 247 million (USD 273 million) and the fair value of contingent consideration of EUR 47 million (USD 51 million), which AGI is eligible to receive upon the achievement of specified milestones. The preliminary purchase price allocation resulted in net identifiable assets of USD 238 million, consisting of USD 196 million intangible assets, USD 26 million other net assets, USD 16 million net deferred tax assets. Goodwill amounted to USD 86 million. Results of operations since the date of acquisition were not material.
Sandoz – retention of US dermatology business and generic US oral solids portfolio, previously planned to be divested
On September 6, 2018, Novartis announced that it entered into a stock and asset purchase agreement (SAPA) with Aurobindo Pharma USA Inc. (Aurobindo) for the sale of selected portions of its Sandoz US portfolio, specifically the Sandoz US dermatology business and generic US oral solids portfolio, for USD 0.8 billion in cash and potential earnouts. The closing was conditional on obtaining regulatory approval.
In March 2020, Novartis took the decision to retain the Sandoz US generic oral solids and dermatology businesses and entered into a mutual agreement with Aurobindo to terminate the transaction. The decision was taken as regulatory approval from the US Federal Trade Commission was not obtained within the SAPA agreed timelines.
The cumulative amount of the depreciation on property, plant and equipment and amortization on intangible assets, not recorded in the consolidated income statement since the date of classification as held for sale, amounting to USD 38 million and USD 102 million, respectively, was recognized in the consolidated income statement in the first quarter of 2020. In addition, an impairment of currently marketed products of USD 42 million was recognized in the first quarter of 2020 consolidated income statement.
As at March 31, 2020, the assets and liabilities of the Sandoz US generic oral solids and dermatology businesses were reclassified out of assets and liabilities of disposal group held for sale. The prior year balance sheet is not required to be restated.
In the Group’s consolidated balance sheet at December 31, 2019, the assets and liabilities classified as disposal group assets and liabilities held for sale consisted of the following:
(USD millions) | Dec 31, 2019 | ||||
Assets of disposal group classified as held for sale | |||||
Property, plant and equipment | 169 | ||||
Intangible assets other than goodwill | 475 | ||||
Deferred tax assets | 11 | ||||
Other non-current assets | 2 | ||||
Inventories | 181 | ||||
Other current assets | 3 | ||||
Total | 841 | ||||
Liabilities of disposal group classified as held for sale | |||||
Deferred tax liabilities | 2 | ||||
Provisions and other non-current liabilities | 4 | ||||
Provisions and other current liabilities | 25 | ||||
Total | 31 | ||||
There are no cumulative income or expenses included in other comprehensive income relating to the disposal group.
Significant transactions in 2019
Completion of the spin-off of the Alcon business through a dividend in kind distribution to Novartis AG shareholders
On June 29, 2018, Novartis announced its intention to seek shareholder approval for the spin-off of the Alcon business into a separately traded standalone company, following the complete structural separation of the Alcon business into a standalone company (the Alcon business or Alcon Inc.).
The Novartis AG shareholders approved the spin-off of the Alcon business at the 2019 Annual General Meeting held on February 28, 2019, subject to completion of certain conditions precedent to the distribution. Upon shareholder approval, the Alcon business was reported as discontinued operations, and the fair value of the Alcon business exceeded the carrying value of its net assets.
The conditions precedent to the spin-off were met and on April 8, 2019 the spin-off of the Alcon business was effected by way of a distribution of a dividend in kind of Alcon Inc. shares to Novartis AG shareholders and ADR (American Depositary Receipt) holders (the Distribution), which amounted to USD 23.4 billion and is recognized as a reduction to retained earnings. Through the Distribution, each Novartis AG shareholder received one Alcon Inc. share for every five Novartis AG shares/ADRs they held on April 8, 2019, close of business. As of April 9, 2019, the shares of Alcon Inc. are listed on the SIX Swiss Exchange (SIX) and on the New York Stock Exchange (NYSE) under the symbol “ALC.”
The dividend in kind distribution liability to effect the spin-off of the Alcon business (the distribution liability) amounted to USD 26.4 billion at March 31, 2019, unchanged from its initial recognition on February 28, 2019, and was in excess of the carrying value of the Alcon business net assets as of February 28, 2019, and as of
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March 31, 2019. The net assets of the Alcon business amounted to USD 23.1 billion as at March 31, 2019.
On March 6, 2019, Alcon entered into financing arrangements with a syndicate of banks under which it borrowed on April 2, 2019, a total amount of USD 3.2 billion. These borrowings consisted of approximately USD 2.8 billion and the equivalent of USD 0.4 billion in EUR in bridge and other term loans under such Alcon facilities agreement. In addition, approximately USD 0.3 billion of borrowings under a number of local bilateral facilities in different countries, with the largest share of borrowings in Japan, were raised. This resulted in a total gross debt of USD 3.5 billion. These outstanding borrowings of the Alcon legal entities were recorded in the balance sheet and financing cash flow from discontinued operations. Prior to the spin-off, through a series of intercompany transactions, Alcon legal entities paid approximately USD 3.1 billion in cash to Novartis and its affiliates.
At the April 8, 2019 Distribution, the fair value of the distribution liability of the Alcon business amounted to USD 23.4 billion, a decrease of USD 3.0 billion from March 31, 2019. As mentioned above, prior to the spin-off, through a series of intercompany transactions, Alcon legal entities incurred additional net financial debt and paid approximately USD 3.1 billion in cash to Novartis and its affiliates. This additional net debt and transactions resulted in a decrease in Alcon’s net assets to USD 20.0 billion at the date of the Distribution of the dividend in kind to Novartis AG shareholders on April 8, 2019. The distribution liability at April 8, 2019, remained in excess of the then-carrying value of the Alcon business net assets.
Certain consolidated foundations own Novartis AG dividend-bearing shares restricting their availability for use by the Group. These Novartis AG shares are accounted for as treasury shares. Through the Distribution, these foundations received Alcon Inc. shares representing an approximate 4.7% equity interest in Alcon Inc. Upon the loss of control of Alcon Inc. through the Distribution, the financial investment in Alcon Inc. was recognized at its fair value based on the opening traded share price of Alcon Inc. on April 9, 2019 (a Level 1 hierarchy valuation). At initial recognition, its fair value of USD 1.3 billion was reported on the Group’s consolidated balance sheet as a financial asset. Management has designated this investment at fair value through other comprehensive income.
The total non-taxable, non-cash gain recognized at the distribution date of the spin-off of the Alcon business amounted to USD 4.7 billion consisting of:
(USD millions) | April 8, 2019 | ||
Net assets derecognized | -20 025 | ||
Derecognition of distribution liability | 23 434 | ||
Difference between net assets and distribution liability | 3 409 | ||
Recognition of Alcon Inc. shares obtained through consolidated foundations | 1 273 | ||
Currency translation gains recycled into the consolidated income statement | 123 | ||
Transaction costs recognized in the consolidated income statement | -114 | ||
Gain on distribution of Alcon Inc. to Novartis AG shareholders | 4 691 | ||
For additional disclosure on discontinued operations, refer to Note 10.
Innovative Medicines – acquisition of IFM Tre, Inc.
On May 7, 2019, Novartis acquired IFM Tre, Inc., a privately held, US-based biopharmaceutical company focused on developing anti-inflammatory medicines targeting the NLRP3 inflammasome. The acquisition gives Novartis full rights to IFM Tre, Inc.’s portfolio of NLRP3 antagonists. The NLRP3 antagonists portfolio consists of one clinical program and two preclinical programs: IFM-2427, a first-in-class, clinical-stage systemic antagonist for an array of chronic inflammatory disorders, including atherosclerosis and nonalcoholic steatohepatitis (NASH); a preclinical-stage gutdirected molecule for the treatment of inflammatory bowel disease; and a preclinical-stage central nervous system (CNS)-penetrant molecule.
The previously held interest of 9% was adjusted to its fair value of USD 33 million through the consolidated income statement at acquisition date. This remeasurement resulted in a gain of USD 14 million. The fair value of the total purchase consideration for acquiring the 91% stake Novartis did not already own amounted to USD 361 million. The amount consisted of an initial cash payment of USD 285 million, and the fair value of the contingent consideration of USD 76 million due to the IFM Tre, Inc. shareholders, which they are eligible to receive upon the achievement of specified development and commercialization milestones. The purchase price allocation resulted in net identifiable assets of USD 355 million, mainly intangibles, and goodwill of USD 39 million. The 2019 results of operations since the date of acquisition were not material.
Innovative Medicines – acquisition of Xiidra
On May 8, 2019, Novartis entered into an agreement with Takeda Pharmaceutical Company Limited (Takeda) to acquire the assets associated with Xiidra (lifitegrast ophthalmic solution) 5% worldwide. Xiidra is the first and only prescription treatment approved to treat both signs and symptoms of dry eye by inhibiting inflammation caused by the disease. The transaction bolsters the Novartis front-of-the-eye portfolio and ophthalmic leadership. The transaction closed on July 1, 2019. The purchase price consists of a USD 3.4 billion upfront payment, customary purchase price adjustments of USD 0.1 billion, and the potential milestone payments of up to USD 1.9 billion, which Takeda is eligible to receive upon the achievement of specified commercialization milestones.
The fair value of the total purchase consideration was USD 3.7 billion. The amount consists of an initial cash payment of USD 3.5 billion, and the fair value of the contingent consideration of USD 0.2 billion, which Takeda is eligible to receive upon the achievement of specified commercialization milestones.
The purchase price allocation resulted in net identifiable assets of approximately USD 3.6 billion, consisting mainly of intangible assets of USD 3.6 billion, and goodwill amounted to approximately USD 0.1 billion. In 2019, from the date of acquisition, the business generated net sales of USD 0.2 billion. Management estimated that net sales for the entire year of 2019 would have amounted to USD 0.3 billion, had the business been acquired at the beginning of the 2019 reporting period.
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The 2019 results of operations since the date of acquisition were not material.
4. Summary of equity attributable to Novartis AG shareholders
Number of outstanding shares (in millions) | Issued share capital and reserves attributable to Novartis AG shareholders (in USD millions) | ||||||||||
Note | 2020 | 2019 | 9M 2020 | 9M 2019 | |||||||
Balance at beginning of year | 2 265.0 | 2 311.2 | 55 474 | 78 614 | |||||||
Impact of change in accounting policy | 4.3 | 3 | |||||||||
Restated equity at January 1 | 55 474 | 78 617 | |||||||||
Shares acquired to be cancelled | -14.7 | -60.3 | -1 305 | -5 351 | |||||||
Other share purchases | -1.6 | -1.7 | -155 | -156 | |||||||
Exercise of options and employee transactions | 14.7 | 5.5 | 806 | 200 | |||||||
Equity-based compensation | 10.8 | 9.9 | 553 | 641 | |||||||
Shares delivered to Alcon employees as a result of the Alcon spin-off | 0.3 | 29 | 32 | ||||||||
Taxes on treasury share transactions | 4.4 | 31 | -189 | ||||||||
(Increase)/Decrease of treasury share repurchase obligation under a share buyback trading plan | 4.1 | -857 | 284 | ||||||||
Dividends to shareholders of Novartis AG | -6 987 | -6 645 | |||||||||
Dividend in kind to effect the spin-off of Alcon Inc. | -23 434 | ||||||||||
Net income of the period attributable to shareholders of Novartis AG | 5 978 | 10 607 | |||||||||
Other comprehensive income attributable to shareholders of Novartis AG | 904 | -1 841 | |||||||||
Transaction costs, net of taxes | 4.5 | -253 | |||||||||
Impact of change in ownership of consolidated entities | -3 | ||||||||||
Other movements | 4.2 | 13 | 15 | ||||||||
Balance at September 30 | 2 274.5 | 2 264.6 | 54 484 | 52 524 | |||||||
4.1. In 2020, Novartis entered into an irrevocable, non-discretionary arrangement with a bank to repurchase Novartis shares to mitigate dilution related to participation plans of associates. Novartis is able to cancel this arrangement at any time but could be subject to a 90-day waiting period. The commitment under this arrangement therefore reflects the obligated purchases by the bank under such trading plan over a rolling 90-day period, or if shorter, until the maturity date of such trading plan. The commitment under this arrangement amounted to USD 857 million as of September 30, 2020.
In 2019, Novartis entered into a similar irrevocable, non-discretionary arrangement with a bank to repurchase Novartis shares. The commitment under this arrangement reflected the expected purchases by the bank under such trading plans over a rolling 90-day period. As of September 30, 2019, this trading plan commitment was fully executed and expired, and as a consequence, there is no contingent liability related to this plan recognized.
4.2. Other movements includes, for subsidiaries in hyperinflationary economies, the impact of the restatement of the non-monetary assets and liabilities with the general price index at the beginning of the period as well as the restatement of the equity balances of the current year.
4.3. In 2019, the impact of change in accounting policy includes USD 3 million related to the implementation of IFRS 16 Leases.
4.4. Included in 2019 is a USD 69 million impact related to the revaluation of deferred tax liability on treasury shares that are recognized through retained earnings. This revaluation resulted from the Swiss Federal tax reform enacted in May 2019, effective January 1, 2020.
4.5. In 2019, transaction costs that were directly attributable to the distribution (spin-off) of Alcon Inc. to Novartis shareholders and that would otherwise have been avoided, were recorded as a deduction from equity.
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5. Financial instruments
Fair value by hierarchy
The following table illustrates the three hierarchical levels for valuing financial instruments at fair value as of September 30, 2020 and December 31, 2019. For additional information on the hierarchies and other matters, please refer to the Consolidated Financial Statements in the 2019 Annual Report, published on January 29, 2020.
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||
(USD millions) | Sep 30, 2020 | Dec 31, 2019 | Sep 30, 2020 | Dec 31, 2019 | Sep 30, 2020 | Dec 31, 2019 | Sep 30, 2020 | Dec 31, 2019 | |||||||||
Marketable securities | |||||||||||||||||
Debt securities | 25 | 24 | 25 | 24 | |||||||||||||
Fund investments | 31 | 37 | 31 | 37 | |||||||||||||
Total marketable securities | 31 | 37 | 25 | 24 | 56 | 61 | |||||||||||
Derivative financial instruments | 177 | 102 | 177 | 102 | |||||||||||||
Total marketable securities and derivative financial instruments | 31 | 37 | 202 | 126 | 233 | 163 | |||||||||||
Long-term financial investments | |||||||||||||||||
Debt and equity securities | 1 030 | 976 | 470 | 581 | 1 500 | 1 557 | |||||||||||
Fund investments | 280 | 233 | 280 | 233 | |||||||||||||
Contingent consideration receivables | 448 | 399 | 448 | 399 | |||||||||||||
Total long-term financial investments | 1 030 | 976 | 1 198 | 1 213 | 2 228 | 2 189 | |||||||||||
Associated companies at fair value through profit or loss | 178 | 186 | 178 | 186 | |||||||||||||
Contingent consideration payables | -1 067 | -1 036 | -1 067 | -1 036 | |||||||||||||
Other financial liabilities | -18 | -29 | -18 | -29 | |||||||||||||
Derivative financial instruments | -145 | -185 | -145 | -185 | |||||||||||||
Total financial liabilities at fair value | -145 | -185 | -1 085 | -1 065 | -1 230 | -1 250 | |||||||||||
During the nine months of 2020, there were no significant transfers from one level to the other and no significant transactions associated with level 3 financial instruments. During the third quarter of 2020, there were three non-significant transfers of equity securities from level 3 to level 1 for USD 111 million due to Initial Public Offerings.
The fair value of straight bonds amounted to USD 30.6 billion at September 30, 2020 (USD 23.7 billion at December 31, 2019) compared to the balance sheet value of USD 27.7 billion at September 30, 2020 (USD 22.2 billion at December 31, 2019). For all other financial assets and liabilities, the carrying amount is a reasonable approximation of the fair value. The carrying amount of financial assets included in the line total long-term financial investments of USD 2.2 billion at September 30, 2020 (USD 2.2 billion at December 31, 2019) is included in line “Financial and other non-current assets” of the consolidated balance sheets.
In accordance with the consolidated foundations Alcon Inc. share divestment plans, Alcon Inc. shares with a fair value of USD 287 million were sold, or otherwise disposed of, in the nine months of 2020 and the USD 16 million gain on disposal was transferred from other comprehensive income to retained earnings (third quarter: nil).
The Group’s exposure to financial risks has not changed significantly during the period and there have been no major changes to the risk management department or in any risk management policies.
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Non-current financial debt – issuance of bonds
Novartis issued the following straight bonds during 2020:
Coupon | Currency | Nominal amount (millions) | Maturity year | Issuer | Issue price | Carrying value Sep 30, 2020 (USD millions) | |||||||
1.75% | USD | 1 000 | 2025 | Novartis Capital Corporation, New York, United States | 99.852% | 996 | |||||||
2.00% | USD | 1 250 | 2027 | Novartis Capital Corporation, New York, United States | 99.909% | 1 245 | |||||||
2.20% | USD | 1 500 | 2030 | Novartis Capital Corporation, New York, United States | 99.869% | 1 492 | |||||||
2.75% | USD | 1 250 | 2050 | Novartis Capital Corporation, New York, United States | 97.712% | 1 213 | |||||||
0.00% 1 | EUR | 1 850 | 2028 | Novartis Finance S.A., Luxembourg, Luxembourg | 99.354% | 2 151 | |||||||
1 The EUR 1 850 million bond issued on September 16, 2020, features a coupon step-up of 0.25% commencing with first interest payment date after December 31, 2025, if one or both of the 2025 Patient Access Targets are not met. These 2025 Patient Access Targets are the 2025 Flagship Programs Patient Reach Target and the 2025 Strategic Innovative Therapies Patient Reach Target, as defined in the bond agreement. |
6. Details to the consolidated statements of cash flows
6.1. Reversal of non-cash items and other adjustments from continuing operations
(USD millions) | Q3 2020 | Q3 2019 | |||
Depreciation, amortization and impairments on: | |||||
Property, plant and equipment | 705 | 446 | |||
Right-of-use assets | 82 | 78 | |||
Intangible assets | 947 | 878 | |||
Financial assets 1 | -139 | -29 | |||
Change in provisions and other non-current liabilities | 498 | 382 | |||
Gains on disposal and other adjustments on property, plant and equipment; intangible assets; financial assets; and other non-current assets, net | -93 | -17 | |||
Equity-settled compensation expense | 202 | 216 | |||
Income from associated companies | -226 | -253 | |||
Taxes | 478 | 366 | |||
Net financial expense | 228 | 204 | |||
Total | 2 682 | 2 271 | |||
1 Includes fair value adjustments |
(USD millions) | 9M 2020 | 9M 2019 | |||
Depreciation, amortization and impairments on: | |||||
Property, plant and equipment | 1 405 | 1 165 | |||
Right-of-use assets | 236 | 227 | |||
Intangible assets | 3 206 | 2 497 | |||
Financial assets 1 | -266 | -49 | |||
Change in provisions and other non-current liabilities | 1 336 | 1 400 | |||
Gains on disposal and other adjustments on property, plant and equipment; intangible assets; financial assets; and other non-current assets, net | -148 | -701 | |||
Equity-settled compensation expense | 579 | 588 | |||
Income from associated companies | -532 | -509 | |||
Taxes | 1 347 | 1 163 | |||
Net financial expense | 721 | 591 | |||
Total | 7 884 | 6 372 | |||
1 Includes fair value adjustments |
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6.2. Total amount of taxes paid
During the nine-month period of 2020, the total amount of taxes paid was USD 1 303 million (Q3 2020: USD 316 million), of which USD 1 215 million (Q3 2020: USD 316 million) was included within “Net cash flows from operating activities from continuing operations”, and USD 88 million (Q3 2020: nil) was included within “Net cash flows used in investing activities from discontinued operations.”
During the nine-month period of 2019, the total amount of taxes paid was USD 1 233 million (Q3 2019: USD 235 million), of which USD 38 million (Q3 2019: nil) was included within “Net cash flows from operating activities from discontinued operations.”
6.3. Cash flows arising from acquisitions and divestments of businesses, net
(USD millions) | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 | |||||
Net assets recognized as a result of business combinations | -143 | -3 651 | -10 173 | -4 124 | |||||
Fair value of previously held equity interests | 6 | 6 | 33 | ||||||
Receivables and payables contingent consideration, net | 21 | 166 | 98 | 242 | |||||
Payments, deferred consideration and other adjustments, net | -29 | 36 | -3 | ||||||
Cash flows used for acquisitions of businesses | -145 | -3 485 | -10 033 | -3 852 | |||||
Cash flows from divestments of businesses, net 1 | 35 | 25 | 22 | 10 | |||||
Cash flows used for acquisitions and divestments of businesses, net | -110 | -3 460 | -10 011 | -3 842 | |||||
1 In the first nine months of 2020 the USD 22 million (Q3 2020: USD 35 million) included USD 19 million (Q3 2020: USD 34 million) net cash inflows from previous years divestments and USD 3 million (Q3 2020: USD 1 million) net cash inflows from business divestments in 2020. The net identifiable assets of the 2020 divested businesses comprised property, plant and equipment of USD 6 million. In the first nine months of 2019 the USD 10 million (Q3 2019: USD 25 million) included USD 19 million (Q3 2019: USD 4 million) net cash outflows from previous years divestments and USD 29 million net cash inflows in the third quarter from business divestments in 2019. The net identifiable assets of the 2019 divested businesses amounted to USD 63 million, comprised of non-current asset of USD 65 million, current assets of USD 9 million, non-current liabilities USD 7 million and current liabilities of USD 4 million. |
Notes 3 and 7 provide further information regarding acquisitions and divestments of businesses. All acquisitions were for cash.
7. Acquisition of businesses
Fair value of assets and liabilities arising from acquisitions:
(USD millions) | 9M 2020 | 9M 2019 | |||
Property, plant and equipment | 26 | 44 | |||
Right-of-use assets | 32 | ||||
Currently marketed products | 196 | 3 550 | |||
Acquired research and development | 8 600 | 433 | |||
Other intangible assets | 218 | 0 | |||
Deferred tax assets | 476 | 52 | |||
Non-current financial and other assets | 49 | 8 | |||
Inventories | 84 | 186 | |||
Trade receivables, financial and other current assets | 109 | 4 | |||
Cash and cash equivalents | 76 | ||||
Deferred tax liabilities | -1 977 | -123 | |||
Current and non-current financial debts | -32 | -2 | |||
Current and non-current lease liabilities | -44 | ||||
Trade payables and other liabilities | -144 | -167 | |||
Net identifiable assets acquired | 7 669 | 3 985 | |||
Acquired cash and cash equivalents | -76 | ||||
Goodwill | 2 580 | 139 | |||
Net assets recognized as a result of business combinations | 10 173 | 4 124 | |||
40
Note 3 details significant acquisitions of businesses, specifically, The Medicines Company and the Japanese business of AGI in 2020, Xiidra and IFM Tre, Inc. in 2019. The goodwill arising out of these acquisitions is attributable to the buyer specific synergies, the assembled workforce, and the accounting for deferred tax liabilities on the acquired assets. Goodwill of USD 73 million in 2020 (2019: USD 100 million) is tax deductible.
8. Legal proceedings update
A number of Novartis companies are, and will likely continue to be, subject to various legal proceedings, including litigations, arbitrations and governmental investigations, that arise from time to time. Legal proceedings are inherently unpredictable. As a result, the Group may become subject to substantial liabilities that may not be covered by insurance and may in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations or cash flow. Note 20 to the Consolidated Financial Statements in our 2019 Annual Report and 2019 Form 20-F contains a summary as of the date of these reports of significant legal proceedings to which Novartis or its subsidiaries were a party. The following is a summary as of October 26, 2020 of significant developments in those proceedings, as well as any new significant proceedings commenced since the date of the 2019 Annual Report and 2019 Form 20-F.
Investigations and related litigations
Government generic pricing antitrust investigations, antitrust class actions
Since 2016, Sandoz Inc. received grand jury subpoenas and a civil investigative demand and interrogatories from the Antitrust and Civil Divisions of the US Department of Justice (DOJ) in connection with alleged price fixing and market allocation of generic drugs in the US market as well as alleged False Claims Act violations. Sandoz Inc. reached a resolution with the DOJ Antitrust Division, pursuant to which Sandoz Inc. agreed to pay USD 195 million and entered into a deferred prosecution agreement. The Sandoz resolution related to instances of misconduct at the company between 2013 and 2015 with regard to certain generic drugs sold in the United States. Under the terms of that agreement, Sandoz Inc. will continue to take steps to enhance its compliance program, employee training and monitoring, and will continue to cooperate with the US government’s ongoing investigation into the generic pharmaceutical industry. Sandoz Inc. is also in negotiations with the DOJ Civil Division to resolve potential related claims and has recorded a provision of USD 187 million.
Southern District of New York (S.D.N.Y.) marketing practices investigation and litigation
In 2013, the US government filed a civil complaint in intervention to an individual qui tam action against Novartis Pharmaceuticals Corporation (NPC) in the United States District Court (USDC) for the S.D.N.Y. The complaint, as subsequently amended, asserted federal False Claims Act (FCA) and common law claims with respect to speaker programs and other promotional activities for certain NPC cardiovascular medications (Lotrel, Starlix and Valturna) allegedly serving as mechanisms to provide kickbacks to healthcare professionals (HCPs). Also in 2013, New York State filed a civil complaint in intervention asserting similar claims. In July 2020, Novartis finalized its settlement agreement with the S.D.N.Y, the New York State Attorney General and the individual relator to resolve their claims. As part of this settlement, Novartis agreed to pay USD 0.7 billion, and has agreed to new corporate integrity obligations with the Office of Inspector General of the US Department of Health & Human Services.
U.S. Government Foreign Corrupt Practices Act (FCPA) investigations
In June 2020, Novartis reached settlements with the DOJ and the US Securities and Exchange Commission (SEC) resolving all Foreign Corrupt Practices Act (FCPA) investigations into historical conduct by Novartis and its subsidiaries. These investigations were previously disclosed in Note 20 to the Consolidated Financial Statements in our 2019 Annual Report and 2019 Form 20-F under the headings “Greece investigation,” “South Korea investigation” and “Asia/Russia investigation.” As part of the coordinated resolution of these investigations, Novartis and certain of its current and former subsidiaries agreed to pay USD 0.3 billion. To resolve the DOJ investigation, Novartis Hellas S.A.C.I. entered into a deferred prosecution agreement (“Novartis Hellas DPA”) pertaining to inappropriate economic benefits provided to Greek healthcare professionals from 2012 to 2015 in connection with the ophthalmology product Lucentis. The Novartis Hellas DPA also covers books and records issues pertaining to the Lucentis conduct and to conduct related to a 2009 epidemiological study. The resolutions contain no allegations relating to any bribery of Greek politicians, which is consistent with what Novartis found in its own internal investigation. Alcon Pte Ltd, a former Novartis subsidiary, has entered into a separate deferred prosecution agreement with the DOJ (“Alcon DPA”) pertaining to inappropriate economic benefits provided to Vietnamese healthcare professionals and books and records violations from 2011 to 2014 in Vietnam. This conduct related to a consultancy program run by a distributor in Vietnam. To resolve the SEC investigation, Novartis AG reached an agreement pertaining to internal controls and books and records violations in Greece, Vietnam and South Korea. The violations in Greece pertain to the Lucentis-related conduct covered in the Novartis Hellas DPA as well as controls issues with
41
Novartis Hellas post-approval studies identified by internal review in 2012 and resolved by 2013. In Vietnam, the violations relate to the activities involving an Alcon distributor that are the subject of the Alcon DPA. In South Korea, the violations relate to conduct for which Novartis has already taken responsibility in South Korea, where Novartis is in the final stages of resolving these issues with the local authorities. The SEC agreement also addresses certain internal controls and books and records issues related to Alcon China’s placement of surgical devices.
Lucentis/Avastin® matters
In 2019, the French Competition Authority (FCA) issued a Statement of Objections against Novartis entities alleging anti-competitive practices on the French market for anti-vascular endothelial growth factor treatments for neovascular age-related macular degeneration from 2008 to 2013. In September 2020, the FCA issued a decision finding that the Novartis entities had infringed competition law and imposing a fine of EUR 385 million (equivalent to approximately USD 452 million). Novartis is appealing the FCA’s decision. As of September 30, 2020, a provision in the amount of USD 452 million has been recorded for this matter in the Innovative Medicines Division.
In addition to the matters described above, there have been other developments in the other legal matters described in Note 20 to the Consolidated Financial Statements contained in our 2019 Annual Report and 2019 Form 20-F.
Novartis believes that its total provisions for investigations, product liability, arbitration and other legal matters are adequate based upon currently available information. However, given the inherent difficulties in estimating liabilities, there can be no assurance that additional liabilities and costs will not be incurred beyond the amounts provided.
9. Segmentation of key figures
The businesses of Novartis are divided operationally on a worldwide basis into two identified reporting segments, Innovative Medicines and Sandoz. In addition, we separately report Corporate activities.
Reporting segments are presented in a manner consistent with the internal reporting to the chief operating decision maker which is the Executive Committee of Novartis. The reporting segments are managed separately because they each research, develop, manufacture, distribute and sell distinct products that require differing marketing strategies.
The Executive Committee of Novartis is responsible for allocating resources and assessing the performance of the reporting segments.
The reporting segments are as follows:
Innovative Medicines researches, develops, manufactures, distributes and sells patented prescription medicines. The Innovative Medicines Division is organized into two global business units: Novartis Oncology and Novartis Pharmaceuticals. Novartis Oncology consists of the global business franchise Oncology, and Novartis Pharmaceuticals consists of the global business franchises Ophthalmology; Immunology, Hepatology and Dermatology; Neuroscience; Respiratory; Cardiovascular, Renal and Metabolism; and Established Medicines.
Sandoz develops, manufactures and markets finished dosage form medicines as well as intermediary products including active pharmaceutical ingredients. Sandoz is organized globally into three franchises: Retail Generics, Anti-Infectives and Biopharmaceuticals. In Retail Generics, Sandoz develops, manufactures and markets active ingredients and finished dosage forms of small molecule pharmaceuticals to third parties across a broad range of therapeutic areas, as well as finished dosage form of anti-infectives sold to third parties. In Anti-Infectives, Sandoz manufactures and supplies active pharmaceutical ingredients and intermediates, mainly antibiotics, for internal use by Retail Generics and for sale to third-party customers. In Biopharmaceuticals, Sandoz develops, manufactures and markets protein- or other biotechnology-based products, including biosimilars, and provides biotechnology manufacturing services to other companies.
The divisions are supported by Novartis Institutes for BioMedical Research, Global Drug Development, Novartis Technical Operations and Novartis Business Services. Corporate includes the costs of the Group headquarters and those of corporate coordination functions in major countries, and items that are not specific to one segment. Further details are provided in Note 3 to the Consolidated Financial Statements of the 2019 Annual Report.
Following the February 28, 2019, shareholders’ approval of the spin-off of the Alcon business, the Group reported its financial results as “continuing operations” and “discontinued operations” (refer to Notes 2, 3 and 10 for further details).
Continuing operations comprise the activities of Innovative Medicines and Sandoz Divisions and the continuing Corporate activities.
Discontinued operations included in 2019 the operational results from the Alcon eye care devices business and certain Corporate activities attributable to the Alcon business prior to the spin-off, the gain on distribution of Alcon Inc. to Novartis AG shareholders, and certain other expenses related to the Distribution (see Notes 2, 3 and 10).
42
Segmentation – Consolidated income statement
Third quarter
Innovative Medicines | Sandoz | Corporate (including eliminations) | Group | ||||||||||||||
(USD millions) | Q3 2020 | Q3 2019 | Q3 2020 | Q3 2019 | Q3 2020 | Q3 2019 | Q3 2020 | Q3 2019 | |||||||||
Net sales to third parties from continuing operations | 9 837 | 9 688 | 2 422 | 2 484 | 12 259 | 12 172 | |||||||||||
Sales to continuing segments | 193 | 190 | 45 | 42 | -238 | -232 | |||||||||||
Net sales from continuing operations | 10 030 | 9 878 | 2 467 | 2 526 | -238 | -232 | 12 259 | 12 172 | |||||||||
Other revenues | 265 | 295 | 10 | 7 | 4 | 8 | 279 | 310 | |||||||||
Cost of goods sold | -2 750 | -2 679 | -1 255 | -1 354 | 252 | 257 | -3 753 | -3 776 | |||||||||
Gross profit from continuing operations | 7 545 | 7 494 | 1 222 | 1 179 | 18 | 33 | 8 785 | 8 706 | |||||||||
Selling, general and administration | -2 825 | -2 868 | -488 | -532 | -106 | -149 | -3 419 | -3 549 | |||||||||
Research and development | -1 930 | -2 002 | -216 | -197 | -2 146 | -2 199 | |||||||||||
Other income | 174 | 86 | 34 | 40 | 198 | 70 | 406 | 196 | |||||||||
Other expense | -966 | -306 | -157 | -299 | -91 | -191 | -1 214 | -796 | |||||||||
Operating income from continuing operations | 1 998 | 2 404 | 395 | 191 | 19 | -237 | 2 412 | 2 358 | |||||||||
as % of net sales | 20.3% | 24.8% | 16.3% | 7.7% | 19.7% | 19.4% | |||||||||||
Income from associated companies | 1 | 1 | 225 | 252 | 226 | 253 | |||||||||||
Interest expense | -209 | -216 | |||||||||||||||
Other financial income and expense | -19 | 12 | |||||||||||||||
Income before taxes from continuing operations | 2 410 | 2 407 | |||||||||||||||
Taxes | -478 | -366 | |||||||||||||||
Net income from continuing operations | 1 932 | 2 041 | |||||||||||||||
Net income | 1 932 | 2 041 | |||||||||||||||
Nine months to September 30
Innovative Medicines | Sandoz | Corporate (including eliminations) | Group | ||||||||||||||
(USD millions) | 9M 2020 | 9M 2019 | 9M 2020 | 9M 2019 | 9M 2020 | 9M 2019 | 9M 2020 | 9M 2019 | |||||||||
Net sales to third parties from continuing operations | 28 780 | 27 794 | 7 109 | 7 248 | 35 889 | 35 042 | |||||||||||
Sales to continuing and discontinued segments | 602 | 616 | 137 | 118 | -739 | -681 | 53 | ||||||||||
Net sales from continuing operations | 29 382 | 28 410 | 7 246 | 7 366 | -739 | -681 | 35 889 | 35 095 | |||||||||
Other revenues | 772 | 806 | 45 | 41 | 162 | 19 | 979 | 866 | |||||||||
Cost of goods sold | -7 830 | -7 230 | -3 869 | -3 945 | 795 | 742 | -10 904 | -10 433 | |||||||||
Gross profit from continuing operations | 22 324 | 21 986 | 3 422 | 3 462 | 218 | 80 | 25 964 | 25 528 | |||||||||
Selling, general and administration | -8 446 | -8 432 | -1 504 | -1 644 | -323 | -388 | -10 273 | -10 464 | |||||||||
Research and development | -6 036 | -5 960 | -611 | -589 | -6 647 | -6 549 | |||||||||||
Other income | 500 | 1 008 | 83 | 122 | 516 | 258 | 1 099 | 1 388 | |||||||||
Other expense | -1 556 | -1 525 | -719 | -605 | -360 | -510 | -2 635 | -2 640 | |||||||||
Operating income from continuing operations | 6 786 | 7 077 | 671 | 746 | 51 | -560 | 7 508 | 7 263 | |||||||||
as % of net sales | 23.6% | 25.5% | 9.4% | 10.3% | 20.9% | 20.7% | |||||||||||
Income from associated companies | 1 | 1 | 2 | 2 | 529 | 506 | 532 | 509 | |||||||||
Interest expense | -668 | -647 | |||||||||||||||
Other financial income and expense | -53 | 56 | |||||||||||||||
Income before taxes from continuing operations | 7 319 | 7 181 | |||||||||||||||
Taxes | -1 347 | -1 163 | |||||||||||||||
Net income from continuing operations | 5 972 | 6 018 | |||||||||||||||
Net loss from discontinued operations before gain on distribution of Alcon Inc. to Novartis AG shareholders | -101 | ||||||||||||||||
Gain on distribution of Alcon Inc. to Novartis AG shareholders | 4 691 | ||||||||||||||||
Net income from discontinued operations | 4 590 | ||||||||||||||||
Net income | 5 972 | 10 608 | |||||||||||||||
43
Segmentation – Additional consolidated balance sheet and income statement disclosure
Innovative Medicines | Sandoz | Corporate (including eliminations) | Group | ||||||||||||||
(USD millions) | Sep 30, 2020 | Dec 31, 2019 | Sep 30, 2020 | Dec 31, 2019 | Sep 30, 2020 | Dec 31, 2019 | Sep 30, 2020 | Dec 31, 2019 | |||||||||
Total assets | 82 104 | 71 225 | 16 550 | 16 468 | 31 024 | 30 677 | 129 678 | 118 370 | |||||||||
Total liabilities | -15 056 | -15 332 | -3 655 | -3 804 | -56 413 | -43 683 | -75 124 | -62 819 | |||||||||
Total equity | 54 554 | 55 551 | |||||||||||||||
Net debt | 25 354 | 15 938 | 25 354 | 15 938 | |||||||||||||
Net operating assets/(liabilities) | 67 048 | 55 893 | 12 895 | 12 664 | -35 | 2 932 | 79 908 | 71 489 | |||||||||
Included in net operating assets are: | |||||||||||||||||
Property, plant and equipment | 9 431 | 9 632 | 1 763 | 1 888 | 517 | 549 | 11 711 | 12 069 | |||||||||
Goodwill | 21 476 | 18 750 | 8 048 | 7 767 | 8 | 7 | 29 532 | 26 524 | |||||||||
Intangible assets other than goodwill | 35 191 | 27 586 | 1 564 | 1 125 | 128 | 76 | 36 883 | 28 787 | |||||||||
In the third quarter net impairment charges for property, plant and equipment from continuing operations amounted to USD 381 million (2019: USD 116 million) of which USD 280 million (2019: USD 49 million) in the Innovative Medicines Division and USD 101 million (2019: USD 67 million) in the Sandoz Division.
In the first nine months net impairment charges for property, plant and equipment from continuing operations amounted to USD 403 million (2019: USD 160 million) of which USD 291 million (2019: USD 85 million) in the Innovative Medicines Division and USD 112 million (2019: USD 75 million) in the Sandoz Division.
The following table shows the intangible asset impairment charges from continuing operations:
(USD millions) | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 | |||||
Innovative Medicines 1 | -68 | -13 | -577 | -479 | |||||
Sandoz | -48 | -35 | -90 | -47 | |||||
Total | -116 | -48 | -667 | -526 | |||||
1 Nine months 2020 includes an impairment of USD 485 million related to the write-down of IPR&D related to cessation of clinical development program ZPL389 for atopic dermatitis. Nine months 2019 includes an impairment of USD 416 million related to the write-down of IPR&D acquired through the 2015 Spinifex Pharmaceuticals Inc. acquisition. | |||||||||
44
Segmentation – Net sales by region1
Third quarter
Q3 2020 USD m | Q3 2019 USD m | % change USD | % change cc 2 | Q3 2020 % of total | Q3 2019 % of total | ||||||||
Innovative Medicines | |||||||||||||
Europe | 3 455 | 3 195 | 8 | 5 | 35 | 33 | |||||||
US | 3 632 | 3 725 | -2 | -2 | 37 | 38 | |||||||
Asia/Africa/Australasia | 2 154 | 2 112 | 2 | 1 | 22 | 22 | |||||||
Canada and Latin America | 596 | 656 | -9 | 4 | 6 | 7 | |||||||
Total | 9 837 | 9 688 | 2 | 1 | 100 | 100 | |||||||
Of which in Established Markets | 7 556 | 7 405 | 2 | 0 | 77 | 76 | |||||||
Of which in Emerging Growth Markets | 2 281 | 2 283 | 0 | 4 | 23 | 24 | |||||||
Sandoz | |||||||||||||
Europe | 1 298 | 1 297 | 0 | -2 | 54 | 52 | |||||||
US | 547 | 655 | -16 | -16 | 23 | 26 | |||||||
Asia/Africa/Australasia | 385 | 333 | 16 | 14 | 16 | 13 | |||||||
Canada and Latin America | 192 | 199 | -4 | 6 | 7 | 9 | |||||||
Total | 2 422 | 2 484 | -2 | -3 | 100 | 100 | |||||||
Of which in Established Markets | 1 780 | 1 823 | -2 | -5 | 73 | 73 | |||||||
Of which in Emerging Growth Markets | 642 | 661 | -3 | 2 | 27 | 27 | |||||||
Continuing operations | |||||||||||||
Europe | 4 753 | 4 492 | 6 | 3 | 39 | 37 | |||||||
US | 4 179 | 4 380 | -5 | -5 | 34 | 36 | |||||||
Asia/Africa/Australasia | 2 539 | 2 445 | 4 | 2 | 21 | 20 | |||||||
Canada and Latin America | 788 | 855 | -8 | 4 | 6 | 7 | |||||||
Total | 12 259 | 12 172 | 1 | 0 | 100 | 100 | |||||||
Of which in Established Markets | 9 336 | 9 228 | 1 | -1 | 76 | 76 | |||||||
Of which in Emerging Growth Markets | 2 923 | 2 944 | -1 | 4 | 24 | 24 | |||||||
1 Net sales from operations by location of third-party customer. Emerging Growth Markets comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand. | |||||||||||||
2 Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 54. |
45
Segmentation – Net sales by region1
Nine months to September 30
9M 2020 USD m | 9M 2019 USD m | % change USD | % change cc 2 | 9M 2020 % of total | 9M 2019 % of total | ||||||||
Innovative Medicines | |||||||||||||
Europe | 9 821 | 9 547 | 3 | 4 | 34 | 34 | |||||||
US | 10 689 | 10 054 | 6 | 6 | 37 | 36 | |||||||
Asia/Africa/Australasia | 6 455 | 6 235 | 4 | 4 | 22 | 22 | |||||||
Canada and Latin America | 1 815 | 1 958 | -7 | 6 | 7 | 8 | |||||||
Total | 28 780 | 27 794 | 4 | 5 | 100 | 100 | |||||||
Of which in Established Markets | 21 822 | 21 043 | 4 | 4 | 76 | 76 | |||||||
Of which in Emerging Growth Markets | 6 958 | 6 751 | 3 | 9 | 24 | 24 | |||||||
Sandoz | |||||||||||||
Europe | 3 856 | 3 807 | 1 | 2 | 54 | 53 | |||||||
US | 1 625 | 1 887 | -14 | -14 | 23 | 26 | |||||||
Asia/Africa/Australasia | 1 060 | 984 | 8 | 8 | 15 | 14 | |||||||
Canada and Latin America | 568 | 570 | 0 | 10 | 8 | 7 | |||||||
Total | 7 109 | 7 248 | -2 | 0 | 100 | 100 | |||||||
Of which in Established Markets | 5 246 | 5 314 | -1 | -1 | 74 | 73 | |||||||
Of which in Emerging Growth Markets | 1 863 | 1 934 | -4 | 2 | 26 | 27 | |||||||
Continuing operations | |||||||||||||
Europe | 13 677 | 13 354 | 2 | 3 | 38 | 38 | |||||||
US | 12 314 | 11 941 | 3 | 3 | 34 | 34 | |||||||
Asia/Africa/Australasia | 7 515 | 7 219 | 4 | 5 | 21 | 21 | |||||||
Canada and Latin America | 2 383 | 2 528 | -6 | 7 | 7 | 7 | |||||||
Total | 35 889 | 35 042 | 2 | 4 | 100 | 100 | |||||||
Of which in Established Markets | 27 068 | 26 357 | 3 | 3 | 75 | 75 | |||||||
Of which in Emerging Growth Markets | 8 821 | 8 685 | 2 | 7 | 25 | 25 | |||||||
1 Net sales from operations by location of third-party customer. Emerging Growth Markets comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand. | |||||||||||||
2 Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 54. |
46
Segmentation – Net sales by business franchise
Innovative Medicines Division net sales by business franchise
Third quarter
Q3 2020 | Q3 2019 | % change | % change | ||||||
USD m | USD m | USD | cc 1 | ||||||
Oncology | |||||||||
Tasigna | 478 | 487 | -2 | -2 | |||||
Promacta/Revolade | 442 | 380 | 16 | 16 | |||||
Tafinlar + Mekinist | 397 | 345 | 15 | 14 | |||||
Sandostatin | 361 | 388 | -7 | -7 | |||||
Jakavi | 335 | 279 | 20 | 18 | |||||
Gleevec/Glivec | 280 | 320 | -13 | -13 | |||||
Afinitor/Votubia | 262 | 400 | -35 | -34 | |||||
Kisqali | 183 | 123 | 49 | 50 | |||||
Exjade/Jadenu | 162 | 253 | -36 | -37 | |||||
Votrient | 160 | 198 | -19 | -19 | |||||
Lutathera | 119 | 119 | 0 | -1 | |||||
Kymriah | 122 | 79 | 54 | 51 | |||||
Piqray | 83 | 43 | 93 | 95 | |||||
Adakveo | 35 | nm | nm | ||||||
Tabrecta | 12 | nm | nm | ||||||
Other | 267 | 301 | -11 | -12 | |||||
Total Novartis Oncology business unit | 3 698 | 3 715 | 0 | -1 | |||||
Immunology, Hepatology and Dermatology | |||||||||
Cosentyx | 1 012 | 937 | 8 | 7 | |||||
Ilaris | 220 | 177 | 24 | 25 | |||||
Total Immunology, Hepatology and Dermatology | 1 232 | 1 114 | 11 | 10 | |||||
Ophthalmology | |||||||||
Lucentis | 515 | 500 | 3 | 0 | |||||
Xiidra | 99 | 102 | -3 | -3 | |||||
Beovu | 51 | nm | nm | ||||||
Other | 487 | 612 | -20 | -20 | |||||
Total Ophthalmology | 1 152 | 1 214 | -5 | -6 | |||||
Neuroscience | |||||||||
Gilenya | 733 | 829 | -12 | -13 | |||||
Zolgensma | 291 | 160 | 82 | 79 | |||||
Mayzent | 49 | 4 | nm | nm | |||||
Aimovig | 39 | 33 | 18 | 11 | |||||
Other | 13 | 16 | -19 | -12 | |||||
Total Neuroscience | 1 125 | 1 042 | 8 | 6 | |||||
Cardiovascular, Renal and Metabolism | |||||||||
Entresto | 632 | 430 | 47 | 45 | |||||
Other | 0 | 7 | nm | nm | |||||
Total Cardiovascular, Renal and Metabolism | 632 | 437 | 45 | 43 | |||||
Respiratory | |||||||||
Xolair | 320 | 299 | 7 | 6 | |||||
Ultibro Group | 154 | 145 | 6 | 4 | |||||
Other | 6 | 4 | 50 | 65 | |||||
Total Respiratory | 480 | 448 | 7 | 6 | |||||
Established Medicines | |||||||||
Galvus Group | 289 | 320 | -10 | -8 | |||||
Diovan Group | 237 | 254 | -7 | -6 | |||||
Exforge Group | 237 | 249 | -5 | -5 | |||||
Zortress/Certican | 107 | 122 | -12 | -13 | |||||
Neoral/Sandimmun(e) | 93 | 101 | -8 | -9 | |||||
Voltaren/Cataflam | 91 | 105 | -13 | -11 | |||||
Other | 464 | 567 | -18 | -18 | |||||
Total Established Medicines | 1 518 | 1 718 | -12 | -11 | |||||
Total Novartis Pharmaceuticals business unit | 6 139 | 5 973 | 3 | 2 | |||||
Total division net sales | 9 837 | 9 688 | 2 | 1 | |||||
1 Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 54. | |||||||||
nm = not meaningful |
47
Innovative Medicines Division net sales by business franchise
Nine months to September 30
9M 2020 | 9M 2019 | % change | % change | ||||||
USD m | USD m | USD | cc 1 | ||||||
Oncology | |||||||||
Tasigna | 1 445 | 1 389 | 4 | 5 | |||||
Promacta/Revolade | 1 267 | 1 036 | 22 | 24 | |||||
Tafinlar + Mekinist | 1 134 | 982 | 15 | 17 | |||||
Sandostatin | 1 076 | 1 183 | -9 | -8 | |||||
Jakavi | 963 | 821 | 17 | 19 | |||||
Gleevec/Glivec | 897 | 950 | -6 | -4 | |||||
Afinitor/Votubia | 824 | 1 174 | -30 | -29 | |||||
Kisqali | 503 | 325 | 55 | 59 | |||||
Exjade/Jadenu | 497 | 744 | -33 | -33 | |||||
Votrient | 488 | 578 | -16 | -14 | |||||
Lutathera | 336 | 334 | 1 | 0 | |||||
Kymriah | 333 | 182 | 83 | 82 | |||||
Piqray | 236 | 49 | nm | nm | |||||
Adakveo | 71 | nm | nm | ||||||
Tabrecta | 18 | nm | nm | ||||||
Other | 806 | 895 | -10 | -9 | |||||
Total Novartis Oncology business unit | 10 894 | 10 642 | 2 | 4 | |||||
Immunology, Hepatology and Dermatology | |||||||||
Cosentyx | 2 886 | 2 586 | 12 | 12 | |||||
Ilaris | 633 | 493 | 28 | 30 | |||||
Total Immunology, Hepatology and Dermatology | 3 519 | 3 079 | 14 | 15 | |||||
Ophthalmology | |||||||||
Lucentis | 1 403 | 1 569 | -11 | -10 | |||||
Xiidra | 268 | 102 | 163 | 164 | |||||
Beovu | 153 | nm | nm | ||||||
Other | 1 461 | 1 878 | -22 | -21 | |||||
Total Ophthalmology | 3 285 | 3 549 | -7 | -7 | |||||
Neuroscience | |||||||||
Gilenya | 2 243 | 2 420 | -7 | -7 | |||||
Zolgensma | 666 | 175 | nm | nm | |||||
Mayzent | 113 | 9 | nm | nm | |||||
Aimovig | 108 | 75 | 44 | 45 | |||||
Other | 40 | 46 | -13 | -14 | |||||
Total Neuroscience | 3 170 | 2 725 | 16 | 17 | |||||
Cardiovascular, Renal and Metabolism | |||||||||
Entresto | 1 781 | 1 208 | 47 | 48 | |||||
Other | 1 | 19 | -95 | -99 | |||||
Total Cardiovascular, Renal and Metabolism | 1 782 | 1 227 | 45 | 46 | |||||
Respiratory | |||||||||
Xolair | 916 | 870 | 5 | 7 | |||||
Ultibro Group | 463 | 468 | -1 | 0 | |||||
Other | 16 | 16 | 0 | 4 | |||||
Total Respiratory | 1 395 | 1 354 | 3 | 5 | |||||
Established Medicines | |||||||||
Galvus Group | 906 | 955 | -5 | -2 | |||||
Diovan Group | 779 | 798 | -2 | 1 | |||||
Exforge Group | 733 | 780 | -6 | -3 | |||||
Zortress/Certican | 340 | 362 | -6 | -5 | |||||
Neoral/Sandimmun(e) | 290 | 314 | -8 | -7 | |||||
Voltaren/Cataflam | 265 | 313 | -15 | -13 | |||||
Other | 1 422 | 1 696 | -16 | -14 | |||||
Total Established Medicines | 4 735 | 5 218 | -9 | -7 | |||||
Total Novartis Pharmaceuticals business unit | 17 886 | 17 152 | 4 | 6 | |||||
Total division net sales | 28 780 | 27 794 | 4 | 5 | |||||
1 Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 54. | |||||||||
nm = not meaningful |
48
Net sales of the top 20 Innovative Medicines Division products in 2020
Third quarter
US | Rest of world | Total | |||||||||||||||||||
Brands | Business franchise | Key indication | USD m | % change USD/cc 1 | USD m | % change USD | % change cc 1 | USD m | % change USD | % change cc 1 | |||||||||||
Cosentyx | Immunology, Hepatology and Dermatology | Psoriasis, ankylosing spondylitis and psoriatic arthritis and non-radiographic axial spondyloarthritis | 640 | 6 | 372 | 11 | 9 | 1 012 | 8 | 7 | |||||||||||
Gilenya | Neuroscience | Relapsing multiple sclerosis | 377 | -20 | 356 | -1 | -4 | 733 | -12 | -13 | |||||||||||
Entresto | Cardiovascular, Renal and Metabolism | Chronic heart failure | 314 | 43 | 318 | 51 | 48 | 632 | 47 | 45 | |||||||||||
Tasigna | Oncology | Chronic myeloid leukemia | 214 | 1 | 264 | -4 | -4 | 478 | -2 | -2 | |||||||||||
Lucentis | Ophthalmology | Age-related macular degeneration | 515 | 3 | 0 | 515 | 3 | 0 | |||||||||||||
Promacta/Revolade | Oncology | Immune thrombocytopenia (ITP), severe aplastic anemia (SAA) | 211 | 12 | 231 | 20 | 20 | 442 | 16 | 16 | |||||||||||
Tafinlar + Mekinist | Oncology | BRAF V600+ metastatic and adjuvant melanoma; advanced non-small cell lung cancer (NSCLC) | 141 | 12 | 256 | 17 | 15 | 397 | 15 | 14 | |||||||||||
Sandostatin | Oncology | Carcinoid tumors and acromegaly | 213 | -4 | 148 | -11 | -10 | 361 | -7 | -7 | |||||||||||
Jakavi | Oncology | Myelofibrosis (MF), polycytomia vera (PV) | 335 | 20 | 18 | 335 | 20 | 18 | |||||||||||||
Xolair | Respiratory | Severe Allergic Asthma (SAA), Chronic Spontaneous Urticaria (CSU) and Nasal Polyps | 320 | 7 | 6 | 320 | 7 | 6 | |||||||||||||
Galvus Group | Established Medicines | Type 2 Diabetes | 289 | -10 | -8 | 289 | -10 | -8 | |||||||||||||
Gleevec/Glivec | Oncology | Chronic myeloid leukemia and GIST | 71 | -12 | 209 | -13 | -14 | 280 | -13 | -13 | |||||||||||
Afinitor/Votubia | Oncology | Breast cancer/TSC | 155 | -42 | 107 | -20 | -19 | 262 | -35 | -34 | |||||||||||
Diovan Group | Established Medicines | Hypertension | 33 | 50 | 204 | -12 | -12 | 237 | -7 | -6 | |||||||||||
Exforge Group | Established Medicines | Hypertension | 7 | 40 | 230 | -6 | -5 | 237 | -5 | -5 | |||||||||||
Zolgensma | Neuroscience | Spinal muscular atrophy (SMA) | 122 | -19 | 169 | nm | nm | 291 | 82 | 79 | |||||||||||
Ilaris | Immunology, Hepatology and Dermatology | Auto-inflammatory (CAPS, TRAPS, HIDS/MKD, FMF, SJIA, AOSD and gout) | 104 | 30 | 116 | 20 | 22 | 220 | 24 | 25 | |||||||||||
Kisqali | Oncology | HR+/HER2- metastatic breast cancer | 83 | 41 | 100 | 56 | 62 | 183 | 49 | 50 | |||||||||||
Exjade/Jadenu | Oncology | Chronic iron overload | 35 | -72 | 127 | -2 | -5 | 162 | -36 | -37 | |||||||||||
Votrient | Oncology | Renal cell carcinoma | 64 | -26 | 96 | -14 | -13 | 160 | -19 | -19 | |||||||||||
Top 20 products total | 2 784 | -4 | 4 762 | 8 | 7 | 7 546 | 3 | 2 | |||||||||||||
Rest of portfolio | 848 | 4 | 1 443 | -7 | -7 | 2 291 | -3 | -3 | |||||||||||||
Total division sales | 3 632 | -2 | 6 205 | 4 | 3 | 9 837 | 2 | 1 | |||||||||||||
1 Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 54. | |||||||||||||||||||||
nm = not meaningful |
49
Net sales of the top 20 Innovative Medicines Division products in 2020
Nine months to September 30
US | Rest of world | Total | |||||||||||||||||||
Brands | Business franchise | Key indication | USD m | % change USD/cc 1 | USD m | % change USD | % change cc 1 | USD m | % change USD | % change cc 1 | |||||||||||
Cosentyx | Immunology, Hepatology and Dermatology | Psoriasis, ankylosing spondylitis and psoriatic arthritis and non-radiographic axial spondyloarthritis | 1 830 | 14 | 1 056 | 8 | 10 | 2 886 | 12 | 12 | |||||||||||
Gilenya | Neuroscience | Relapsing multiple sclerosis | 1 181 | -9 | 1 062 | -5 | -4 | 2 243 | -7 | -7 | |||||||||||
Entresto | Cardiovascular, Renal and Metabolism | Chronic heart failure | 915 | 43 | 866 | 52 | 54 | 1 781 | 47 | 48 | |||||||||||
Tasigna | Oncology | Chronic myeloid leukemia | 638 | 7 | 807 | 2 | 4 | 1 445 | 4 | 5 | |||||||||||
Lucentis | Ophthalmology | Age-related macular degeneration | 1 403 | -11 | -10 | 1 403 | -11 | -10 | |||||||||||||
Promacta/Revolade | Oncology | Immune thrombocytopenia (ITP), severe aplastic anemia (SAA) | 610 | 21 | 657 | 24 | 27 | 1 267 | 22 | 24 | |||||||||||
Tafinlar + Mekinist | Oncology | BRAF V600+ metastatic and adjuvant melanoma; advanced non-small cell lung cancer (NSCLC) | 420 | 18 | 714 | 14 | 16 | 1 134 | 15 | 17 | |||||||||||
Sandostatin | Oncology | Carcinoid tumors and acromegaly | 626 | -4 | 450 | -15 | -11 | 1 076 | -9 | -8 | |||||||||||
Jakavi | Oncology | Myelofibrosis (MF), polycytomia vera (PV) | 963 | 17 | 19 | 963 | 17 | 19 | |||||||||||||
Xolair | Respiratory | Severe Allergic Asthma (SAA), Chronic Spontaneous Urticaria (CSU) and Nasal Polyps | 916 | 5 | 7 | 916 | 5 | 7 | |||||||||||||
Galvus Group | Established Medicines | Type 2 Diabetes | 906 | -5 | -2 | 906 | -5 | -2 | |||||||||||||
Gleevec/Glivec | Oncology | Chronic myeloid leukemia and GIST | 245 | -4 | 652 | -6 | -4 | 897 | -6 | -4 | |||||||||||
Afinitor/Votubia | Oncology | Breast cancer/TSC | 487 | -36 | 337 | -19 | -16 | 824 | -30 | -29 | |||||||||||
Diovan Group | Established Medicines | Hypertension | 93 | 39 | 686 | -6 | -3 | 779 | -2 | 1 | |||||||||||
Exforge Group | Established Medicines | Hypertension | 13 | 8 | 720 | -6 | -3 | 733 | -6 | -3 | |||||||||||
Zolgensma | Neuroscience | Spinal muscular atrophy (SMA) | 353 | 118 | 313 | nm | nm | 666 | nm | nm | |||||||||||
Ilaris | Immunology, Hepatology and Dermatology | Auto-inflammatory (CAPS, TRAPS, HIDS/MKD, FMF, SJIA, AOSD and gout) | 287 | 29 | 346 | 28 | 31 | 633 | 28 | 30 | |||||||||||
Kisqali | Oncology | HR+/HER2- metastatic breast cancer | 236 | 38 | 267 | 73 | 82 | 503 | 55 | 59 | |||||||||||
Exjade/Jadenu | Oncology | Chronic iron overload | 113 | -68 | 384 | -1 | -1 | 497 | -33 | -33 | |||||||||||
Votrient | Oncology | Renal cell carcinoma | 200 | -22 | 288 | -10 | -8 | 488 | -16 | -14 | |||||||||||
Top 20 products total | 8 247 | 4 | 13 793 | 5 | 7 | 22 040 | 5 | 6 | |||||||||||||
Rest of portfolio | 2 442 | 15 | 4 298 | -7 | -5 | 6 740 | 0 | 1 | |||||||||||||
Total division sales | 10 689 | 6 | 18 091 | 2 | 4 | 28 780 | 4 | 5 | |||||||||||||
1 Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 54. | |||||||||||||||||||||
nm = not meaningful |
50
Sandoz Division net sales by business franchise
Third quarter
Q3 2020 | Q3 2019 | % change | % change | ||||||
USD m | USD m | USD | cc 2 | ||||||
Retail Generics 1 | 1 812 | 1 930 | -6 | -6 | |||||
Biopharmaceuticals | 498 | 430 | 16 | 13 | |||||
Anti-Infectives | 112 | 124 | -10 | -13 | |||||
Total division net sales | 2 422 | 2 484 | -2 | -3 | |||||
1 Of which USD 154 million (2019: USD 197 million) represents Anti-Infectives sold under Sandoz name | |||||||||
2 Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 54. |
Nine months to September 30
9M 2020 | 9M 2019 | % change | % change | ||||||
USD m | USD m | USD | cc 2 | ||||||
Retail Generics 1 | 5 357 | 5 683 | -6 | -4 | |||||
Biopharmaceuticals | 1 414 | 1 182 | 20 | 20 | |||||
Anti-Infectives | 338 | 383 | -12 | -12 | |||||
Total division net sales | 7 109 | 7 248 | -2 | 0 | |||||
1 Of which USD 510 million (2019: USD 587 million) represents Anti-Infectives sold under Sandoz name | |||||||||
2 Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 54. |
The product portfolio of Sandoz is widely spread in 2020 and 2019.
Segmentation – Other revenue
Third quarter
Innovative Medicines | Sandoz | Corporate | Group | ||||||||||||||
(USD millions) | Q3 2020 | Q3 2019 | Q3 2020 | Q3 2019 | Q3 2020 | Q3 2019 | Q3 2020 | Q3 2019 | |||||||||
Profit sharing income | 218 | 192 | 1 | 218 | 193 | ||||||||||||
Royalty income | 26 | 30 | 6 | 6 | 4 | 6 | 36 | 42 | |||||||||
Milestone income | 12 | 60 | 12 | 60 | |||||||||||||
Other 1 | 9 | 13 | 4 | 2 | 13 | 15 | |||||||||||
Total other revenues | 265 | 295 | 10 | 7 | 4 | 8 | 279 | 310 | |||||||||
1 Other includes revenue from activities such as manufacturing or other services rendered, to the extent such revenue is not recorded under net sales. |
Nine months to September 30
Innovative Medicines | Sandoz | Corporate | Group | ||||||||||||||
(USD millions) | 9M 2020 | 9M 2019 | 9M 2020 | 9M 2019 | 9M 2020 | 9M 2019 | 9M 2020 | 9M 2019 | |||||||||
Profit sharing income | 625 | 542 | 2 | 625 | 544 | ||||||||||||
Royalty income | 80 | 79 | 19 | 13 | 162 | 19 | 261 | 111 | |||||||||
Milestone income | 37 | 158 | 11 | 23 | 48 | 181 | |||||||||||
Other 1 | 30 | 27 | 15 | 3 | 45 | 30 | |||||||||||
Total other revenues | 772 | 806 | 45 | 41 | 162 | 19 | 979 | 866 | |||||||||
1 Other includes revenue from activities such as manufacturing or other services rendered, to the extent such revenue is not recorded under net sales. |
51
10. Discontinued operations
Discontinued operations included in 2019 the operational results from the Alcon eye care devices business and certain Corporate activities attributable to the Alcon business prior to the spin-off, the gain on distribution of Alcon Inc. to Novartis AG shareholders, and certain other expenses related to the Distribution (refer to Note 3 for further details).
The Alcon eye care devices business researched, discovered, developed, manufactured, distributed and sold a broad range of eye care products. Alcon was organized into two global business franchises, Surgical and Vision Care. Alcon also provided services, training, education and technical support for both the Surgical and Vision Care businesses.
Consolidated income statement
(USD millions) | Q3 2019 1 | 9M 2019 | |||
Net sales to third parties from discontinued operations | 1 777 | ||||
Sales to continuing segments | 32 | ||||
Net sales from discontinued operations | 1 809 | ||||
Cost of goods sold | -860 | ||||
Gross profit from discontinued operations | 949 | ||||
Selling, general and administration | -638 | ||||
Research and development | -142 | ||||
Other income | 15 | ||||
Other expense | -113 | ||||
Operating income from discontinued operations | 71 | ||||
as % of net sales | 4.0% | ||||
Interest expense | -10 | ||||
Other financial income and expense | -3 | ||||
Income before taxes from discontinued operations | 58 | ||||
Taxes | -159 | ||||
Net loss from discontinued operations before gain on distribution of Alcon Inc. to Novartis AG shareholders | -101 | ||||
Gain on distribution of Alcon Inc. to Novartis AG shareholders 2 | 4 691 | ||||
Net income from discontinued operations 2 | 4 590 | ||||
1 As the Alcon spin-off was completed on April 9, 2019, there were no results of operations from the Alcon business in Q3 2019. | |||||
2 See Note 3 for further details on the non-taxable non-cash gain on distribution of Alcon Inc. to Novartis AG shareholders recognized on April 8, 2019, date of Distribution. |
Supplemental disclosures related to the Alcon business distributed to Novartis AG shareholders
Cash flows used in investing activities from discontinued operations
Cash flows used in investing activities from discontinued operations include the investing activities of the Alcon business in all periods.
(USD millions) | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 | |||||
Payments attributable to the spin-off of the Alcon business | -20 | -12 | -37 | -26 | |||||
Divested cash and cash equivalents | -628 | ||||||||
Cash flows attributable to the spin-off of the Alcon business | -20 | -12 | -37 | -654 | |||||
Other cash flows from/used in investing activities, net | 15 | -88 | -448 | ||||||
Net cash flows used in/from investing activities from discontinued operations | -20 | 3 | -125 | -1 102 | |||||
Cash flows from financing activities from discontinued operations
During the nine-month period of 2020, the net cash outflows used in financing activities from discontinued operations of USD 37 million (Q3 2020: USD 11 million) was for transaction cost payments directly attributable to the distribution (spin-off) of the Alcon business to Novartis shareholders.
During the nine-month period of 2019, the net cash inflows from financing activities from discontinued operations of USD 3.3 billion (Q3 2019: USD 20 million net cash outflows) included mainly USD 3.5 billion (Q3 2019: nil) from Alcon borrowings, partly offset by USD 0.2 billion (Q3 2019: USD 20 million) transaction cost payments directly attributable to the distribution (spin-off) of the Alcon business to Novartis shareholders (see Note 3).
Significant transaction closed in 2019
In March 2019, Alcon acquired PowerVision, Inc. (PowerVision), a privately-held, US-based medical device
52
development company focused on developing accommodative, implantable intraocular lenses. The fair value of the total purchase consideration was USD 424 million. The amount consisted of an initial cash payment of USD 289 million and the net present value of the contingent consideration of USD 135 million, due to PowerVision shareholders, which they are eligible to receive upon the achievement of specified regulatory and commercialization milestones. The purchase price allocation resulted in net identifiable assets of USD 418 million, consisting of intangible assets, of USD 505 million, net deferred tax liabilities of USD 93 million, other net assets of USD 6 million, and goodwill of USD 6 million. The 2019 results of operations since the date of the acquisition were not material.
For additional information related to the distribution (spin-off) of the Alcon business to Novartis AG shareholders, effected through a dividend in kind distribution that was completed on April 8, 2019, refer to Note 3.
53
Supplementary information (unaudited)
Non-IFRS disclosures
Core results
The Group’s core results –including core operating income, core net income and core earnings per share – exclude fully the amortization and impairment charges of intangible assets, excluding software, net gains and losses on fund investments and equity securities valued at fair value through profit and loss, and certain acquisition and divestment related items. The following items that exceed a threshold of USD 25 million are also excluded: integration and divestment related income and expenses, divestment gains and losses, restructuring charges/releases and related items, legal related items, impairments of property, plant and equipment and financial assets, as well as income and expense items that management deems exceptional and that are or are expected to accumulate within the year to be over a USD 25 million threshold.
Novartis believes that investor understanding of the Group’s performance is enhanced by disclosing core measures of performance because, since they exclude items which can vary significantly from year to year, the core measures enable better comparison of business performance across years. For this same reason, Novartis uses these core measures in addition to IFRS and other measures as important factors in assessing the Group’s performance.
The following are examples of how these core measures are utilized:
• In addition to monthly reports containing financial information prepared under International Financial Reporting Standards (IFRS), senior management receives a monthly analysis incorporating these core measures.
• Annual budgets are prepared for both IFRS and core measures.
Despite the use of these measures by management in setting goals and measuring the Group’s performance, these are non-IFRS measures that have no standardized meaning prescribed by IFRS. As a result, such measures have limits in usefulness to investors.
Because of their non-standardized definitions, the core measures (unlike IFRS measures) may not be comparable to the calculation of similar measures of other companies. These core measures are presented solely to permit investors to more fully understand how the Group’s management assesses underlying performance. These core measures are not, and should not be viewed as, a substitute for IFRS measures.
As an internal measure of Group performance, these core measures have limitations, and the Group’s performance management process is not solely restricted to these metrics. A limitation of the core measures is that they provide a view of the Group’s operations without including all events during a period, such as the effects of an acquisition, divestment, or amortization/impairments of purchased intangible assets and restructurings.
Constant currencies
Changes in the relative values of non-US currencies to the US dollar can affect the Group’s financial results and financial position. To provide additional information that may be useful to investors, including changes in sales volume, we present information about our net sales and various values relating to operating and net income that are adjusted for such foreign currency effects.
Constant currency calculations have the goal of eliminating two exchange rate effects so that an estimate can be made of underlying changes in the consolidated income statement excluding the impact of fluctuations in exchanges rates:
• The impact of translating the income statements of consolidated entities from their non-USD functional currencies to USD; and
• The impact of exchange rate movements on the major transactions of consolidated entities performed in currencies other than their functional currency.
We calculate constant currency measures by translating the current year’s foreign currency values for sales and other income statement items into USD using the average exchange rates from the prior year and comparing them to the prior year values in USD.
We use these constant currency measures in evaluating the Group’s performance, since they may assist us in evaluating our ongoing performance from year to year. However, in performing our evaluation, we also consider equivalent measures of performance which are not affected by changes in the relative value of currencies.
Growth rate calculation
For ease of understanding, Novartis uses a sign convention for its growth rates such that a reduction in operating expenses or losses compared to the prior year is shown as a positive growth.
Net debt and free cash flow
Net debt and free cash flow are non-IFRS financial measures, which means they should not be interpreted as measures determined under IFRS. Net debt is presented as additional information because management believes it is a useful supplemental indicator of the Group’s ability to pay dividends, to meet financial commitments and to invest in new strategic opportunities, including strengthening its balance sheet. Free cash flow is presented as additional information because management believes it is a useful supplemental indicator of the Group’s ability to operate without reliance on additional borrowing or use of existing cash. Free cash flow is a measure of the net cash generated that is available for debt repayment, investment in strategic opportunities and for returning to shareholders. Cash flows in connection with the acquisition or divestment of subsidiaries, associated companies and non-controlling interests in subsidiaries are not taken into account to determine free cash flow. Free cash flow is not intended to be a substitute measure for net cash flows from operating activities as determined under IFRS.
54
CORE RESULTS – Reconciliation from IFRS results to core results – Group
Third quarter
Innovative Medicines | Sandoz | Corporate | Group | ||||||||||||||
(USD millions unless indicated otherwise) | Q3 2020 | Q3 2019 | Q3 2020 | Q3 2019 | Q3 2020 | Q3 2019 | Q3 2020 | Q3 2019 | |||||||||
IFRS operating income from continuing operations | 1 998 | 2 404 | 395 | 191 | 19 | -237 | 2 412 | 2 358 | |||||||||
Amortization of intangible assets | 740 | 732 | 67 | 79 | 807 | 811 | |||||||||||
Impairments | |||||||||||||||||
Intangible assets | 58 | 13 | 48 | 32 | 106 | 45 | |||||||||||
Property, plant and equipment related to the Group-wide rationalization of manufacturing sites | 283 | 44 | 98 | 62 | 381 | 106 | |||||||||||
Total impairment charges | 341 | 57 | 146 | 94 | 487 | 151 | |||||||||||
Acquisition or divestment of businesses and related items | |||||||||||||||||
- Income | -2 | -14 | -40 | -14 | -42 | ||||||||||||
- Expense | 16 | 31 | 18 | 44 | 34 | 75 | |||||||||||
Total acquisition or divestment of businesses and related items, net | 16 | 29 | 4 | 4 | 20 | 33 | |||||||||||
Other items | |||||||||||||||||
Divestment gains | -30 | -6 | -73 | -103 | -6 | ||||||||||||
Financial assets - fair value adjustments | -87 | -45 | -52 | 16 | -139 | -29 | |||||||||||
Restructuring and related items | |||||||||||||||||
- Income | -3 | -15 | -7 | -2 | -19 | -3 | -29 | -20 | |||||||||
- Expense | 97 | 110 | 52 | 91 | 1 | 50 | 150 | 251 | |||||||||
Legal-related items | |||||||||||||||||
- Expense | 453 | 31 | 6 | 72 | 459 | 103 | |||||||||||
Additional income | -44 | -4 | -2 | -83 | -50 | -83 | |||||||||||
Additional expense | 44 | 3 | 3 | 90 | 8 | 86 | 55 | 179 | |||||||||
Total other items | 430 | 78 | 50 | 251 | -137 | 66 | 343 | 395 | |||||||||
Total adjustments | 1 527 | 896 | 263 | 424 | -133 | 70 | 1 657 | 1 390 | |||||||||
Core operating income from continuing operations | 3 525 | 3 300 | 658 | 615 | -114 | -167 | 4 069 | 3 748 | |||||||||
as % of net sales | 35.8% | 34.1% | 27.2% | 24.8% | 33.2% | 30.8% | |||||||||||
Income from associated companies | 1 | 1 | 225 | 252 | 226 | 253 | |||||||||||
Core adjustments to income from associated companies, net of tax | 62 | 60 | 62 | 60 | |||||||||||||
Interest expense | -209 | -216 | |||||||||||||||
Other financial income and expense | -19 | 12 | |||||||||||||||
Core adjustments to other financial income and expense | -2 | -15 | |||||||||||||||
Taxes, adjusted for above items (core taxes) | -660 | -630 | |||||||||||||||
Core net income from continuing operations | 3 467 | 3 212 | |||||||||||||||
Core net income | 3 467 | 3 212 | |||||||||||||||
Core net income attributable to shareholders of Novartis AG | 3 470 | 3 213 | |||||||||||||||
Core basic EPS from continuing operations (USD) 1 | 1.52 | 1.41 | |||||||||||||||
Core basic EPS (USD) 1 | 1.52 | 1.41 | |||||||||||||||
1 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG. |
55
CORE RESULTS – Reconciliation from IFRS results to core results – Group
Nine months to September 30
Innovative Medicines | Sandoz | Corporate | Group | ||||||||||||||
(USD millions unless indicated otherwise) | 9M 2020 | 9M 2019 | 9M 2020 | 9M 2019 | 9M 2020 | 9M 2019 | 9M 2020 | 9M 2019 | |||||||||
IFRS operating income from continuing operations | 6 786 | 7 077 | 671 | 746 | 51 | -560 | 7 508 | 7 263 | |||||||||
Amortization of intangible assets | 2 172 | 1 710 | 300 | 239 | 2 472 | 1 949 | |||||||||||
Impairments | |||||||||||||||||
Intangible assets | 567 | 442 | 90 | 44 | 657 | 486 | |||||||||||
Property, plant and equipment related to the Group-wide rationalization of manufacturing sites | 293 | 78 | 108 | 70 | 401 | 148 | |||||||||||
Other property, plant and equipment | 1 | 2 | 6 | 2 | 7 | ||||||||||||
Total impairment charges | 860 | 521 | 200 | 120 | 1 060 | 641 | |||||||||||
Acquisition or divestment of businesses and related items | |||||||||||||||||
- Income | -3 | -7 | -67 | -79 | -70 | -86 | |||||||||||
- Expense | 90 | 57 | 22 | 79 | 83 | 191 | 140 | ||||||||||
Total acquisition or divestment of businesses and related items, net | 87 | 50 | 22 | 12 | 4 | 121 | 54 | ||||||||||
Other items | |||||||||||||||||
Divestment gains | -178 | -630 | -51 | 2 | -229 | -628 | |||||||||||
Financial assets - fair value adjustments | -62 | -53 | -204 | 4 | -266 | -49 | |||||||||||
Restructuring and related items | |||||||||||||||||
- Income | -14 | -38 | -19 | -3 | -21 | -5 | -54 | -46 | |||||||||
- Expense | 315 | 338 | 188 | 270 | 26 | 82 | 529 | 690 | |||||||||
Legal-related items | |||||||||||||||||
- Income | -31 | -31 | |||||||||||||||
- Expense | 540 | 719 | 398 | 144 | -26 | 912 | 863 | ||||||||||
Additional income | -134 | -253 | -5 | -4 | -142 | -89 | -281 | -346 | |||||||||
Additional expense | 61 | 87 | 51 | 96 | 31 | 107 | 143 | 290 | |||||||||
Total other items | 528 | 170 | 613 | 472 | -387 | 101 | 754 | 743 | |||||||||
Total adjustments | 3 647 | 2 451 | 1 135 | 831 | -375 | 105 | 4 407 | 3 387 | |||||||||
Core operating income from continuing operations | 10 433 | 9 528 | 1 806 | 1 577 | -324 | -455 | 11 915 | 10 650 | |||||||||
as % of net sales | 36.3% | 34.3% | 25.4% | 21.8% | 33.2% | 30.4% | |||||||||||
Income from associated companies | 1 | 1 | 2 | 2 | 529 | 506 | 532 | 509 | |||||||||
Core adjustments to income from associated companies, net of tax | 336 | 335 | 336 | 335 | |||||||||||||
Interest expense | -668 | -647 | |||||||||||||||
Other financial income and expense | -53 | 56 | |||||||||||||||
Core adjustments to other financial income and expense | -10 | 5 | |||||||||||||||
Taxes, adjusted for above items (core taxes) | -1 928 | -1 789 | |||||||||||||||
Core net income from continuing operations | 10 124 | 9 119 | |||||||||||||||
Core net income from discontinued operations 1 | 278 | ||||||||||||||||
Core net income | 10 124 | 9 397 | |||||||||||||||
Core net income attributable to shareholders of Novartis AG | 10 130 | 9 396 | |||||||||||||||
Core basic EPS from continuing operations (USD) 2 | 4.44 | 3.97 | |||||||||||||||
Core basic EPS from discontinued operations (USD) 2 | 0.12 | ||||||||||||||||
Core basic EPS (USD) 2 | 4.44 | 4.09 | |||||||||||||||
1 For details on discontinued operations reconciliation from IFRS to core net income, please refer to page 62. | |||||||||||||||||
2 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG. |
56
CORE RESULTS – Reconciliation from IFRS results to core results – Group
Third quarter
(USD millions unless indicated otherwise) | Q3 2020 IFRS results | Amortization of intangible assets 1 | Impairments 2 | Acquisition or divestment of businesses and related items 3 | Other items 4 | Q3 2020 Core results | Q3 2019 Core results | ||||||||
Gross profit from continuing operations | 8 785 | 795 | 101 | 12 | 72 | 9 765 | 9 664 | ||||||||
Operating income from continuing operations | 2 412 | 807 | 487 | 20 | 343 | 4 069 | 3 748 | ||||||||
Income before taxes from continuing operations | 2 410 | 869 | 487 | 20 | 341 | 4 127 | 3 842 | ||||||||
Taxes from continuing operations 5 | -478 | -660 | -630 | ||||||||||||
Net income from continuing operations | 1 932 | 3 467 | 3 212 | ||||||||||||
Net income | 1 932 | 3 467 | 3 212 | ||||||||||||
Basic EPS from continuing operations (USD) 6 | 0.85 | 1.52 | 1.41 | ||||||||||||
Basic EPS (USD) 6 | 0.85 | 1.52 | 1.41 | ||||||||||||
The following are adjustments to arrive at core gross profit | |||||||||||||||
Cost of goods sold | -3 753 | 795 | 101 | 12 | 72 | -2 773 | -2 818 | ||||||||
The following are adjustments to arrive at core operating income | |||||||||||||||
Selling, general and administration | -3 419 | 1 | 6 | -3 412 | -3 562 | ||||||||||
Research and development | -2 146 | 12 | 5 | -14 | -2 143 | -2 175 | |||||||||
Other income | 406 | -6 | -14 | -309 | 77 | 12 | |||||||||
Other expense | -1 214 | 387 | 21 | 588 | -218 | -191 | |||||||||
The following are adjustments to arrive at core income before taxes | |||||||||||||||
Income from associated companies | 226 | 62 | 288 | 313 | |||||||||||
Other financial income and expense | -19 | -2 | -21 | -3 | |||||||||||
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to in-market products and other production-related intangible assets; research and development includes the amortization of acquired rights for technologies; income from associated companies includes USD 62 million for the Novartis share of the estimated Roche core items | |||||||||||||||
2 Impairments: cost of goods sold and research and development include impairment charges related to intangible assets; other income includes an impairment reversal related to property, plant and equipment; other expense includes impairment charges related to property, plant and equipment | |||||||||||||||
3 Acquisition or divestment of businesses and related items, including restructuring and integration charges: cost of goods sold and other expense include net charges related to acquisitions; other income and other expense include transitional service-fee income and expenses related to the Alcon distribution | |||||||||||||||
4 Other items: cost of goods sold, other income and other expense include net restructuring and other charges related to the Group-wide rationalization of manufacturing sites; cost of goods sold, selling, general and administration, research and development, other income and other expense include other restructuring income and charges and related items; selling, general and administration and other expense also include expenses related to COVID-19 donations; selling, general and administration also includes adjustments to provisions; research and development includes adjustments to contingent considerations; other income and other expense include fair value adjustments and divestment gains and losses on financial assets; other income also includes net gains from the divestment of products; other expense includes legal-related items and a termination fee; other financial income and expense includes a revaluation impact of a financial liability incurred through the Alcon distribution | |||||||||||||||
5 Taxes on the adjustments between IFRS and core results take into account, for each individual item included in the adjustment, the tax rate that will finally be applicable to the item based on the jurisdiction where the adjustment will finally have a tax impact. Generally, this results in amortization and impairment of intangible assets and acquisition-related restructuring and integration items having a full tax impact. There is usually a tax impact on other items, although this is not always the case for items arising from legal settlements in certain jurisdictions. Adjustments related to income from associated companies are recorded net of any related tax effect. Due to these factors and the differing effective tax rates in the various jurisdictions, the tax on the total adjustments of USD 1.7 billion to arrive at the core results before tax amounts to USD 182 million. The average tax rate on the adjustments is 10.6%, since the estimated quarterly core tax charge of 16.0% has been applied to the pre-tax income of the period. | |||||||||||||||
6 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG. |
57
CORE RESULTS – Reconciliation from IFRS results to core results – Group
Nine months to September 30
(USD millions unless indicated otherwise) | 9M 2020 IFRS results | Amortization of intangible assets 1 | Impairments 2 | Acquisition or divestment of businesses and related items 3 | Other items 4 | 9M 2020 Core results | 9M 2019 Core results | ||||||||
Gross profit from continuing operations | 25 964 | 2 435 | 143 | 57 | 108 | 28 707 | 27 713 | ||||||||
Operating income from continuing operations | 7 508 | 2 472 | 1 060 | 121 | 754 | 11 915 | 10 650 | ||||||||
Income before taxes from continuing operations | 7 319 | 2 808 | 1 060 | 121 | 744 | 12 052 | 10 908 | ||||||||
Taxes from continuing operations 5 | -1 347 | -1 928 | -1 789 | ||||||||||||
Net income from continuing operations | 5 972 | 10 124 | 9 119 | ||||||||||||
Net income from discontinued operations 6 | 278 | ||||||||||||||
Net income | 5 972 | 10 124 | 9 397 | ||||||||||||
Basic EPS from continuing operations (USD) 7 | 2.62 | 4.44 | 3.97 | ||||||||||||
Basic EPS from discontinued operations (USD) 7 | 0.12 | ||||||||||||||
Basic EPS (USD) 7 | 2.62 | 4.44 | 4.09 | ||||||||||||
The following are adjustments to arrive at core gross profit | |||||||||||||||
Other revenues | 979 | -136 | 843 | 800 | |||||||||||
Cost of goods sold | -10 904 | 2 435 | 143 | 57 | 244 | -8 025 | -8 182 | ||||||||
The following are adjustments to arrive at core operating income | |||||||||||||||
Selling, general and administration | -10 273 | 15 | 73 | -10 185 | -10 397 | ||||||||||
Research and development | -6 647 | 37 | 514 | 3 | -94 | -6 187 | -6 193 | ||||||||
Other income | 1 099 | -6 | -70 | -715 | 308 | 346 | |||||||||
Other expense | -2 635 | 409 | 116 | 1 382 | -728 | -819 | |||||||||
The following are adjustments to arrive at core income before taxes | |||||||||||||||
Income from associated companies | 532 | 336 | 868 | 844 | |||||||||||
Other financial income and expense | -53 | -10 | -63 | 61 | |||||||||||
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to in-market products and other production-related intangible assets; research and development includes the amortization of acquired rights for technologies; income from associated companies includes USD 336 million for the Novartis share of the estimated Roche core items | |||||||||||||||
2 Impairments: cost of goods sold and research and development include impairment charges related to intangible assets; other income includes an impairment reversal related to property, plant and equipment; other expense includes impairment charges related to property, plant and equipment | |||||||||||||||
3 Acquisition or divestment of businesses and related items, including restructuring and integration charges: cost of goods sold, selling, general and administration, research and development and other expense include net charges related to acquisitions; other income and other expense include transitional service-fee income and expenses related to the Alcon distribution | |||||||||||||||
4 Other items: other revenues includes a settlement of royalties; cost of goods sold includes the cumulative amount of the depreciation up to December 31, 2019, recognized with the reclassification of property, plant and equipment out of assets of disposal group held for sale (see Note 3); cost of goods sold, other income and other expense include restructuring and other charges related to the Group-wide rationalization of manufacturing sites; cost of goods sold, selling, general and administration, research and development, other income and other expense include other restructuring income and charges and related items; selling, general and administration and other expense also include expenses related to COVID-19 donations; selling, general and administration also includes adjustments to provisions; research and development includes adjustments to contingent considerations; other income and other expense include fair value adjustments and divestment gains and losses on financial assets; other income also includes net gains from the divestment of products; other expense includes adjustments to legal provisions, legal-related items and a termination fee; other financial income and expense includes a revaluation impact of a financial liability incurred through the Alcon distribution | |||||||||||||||
5 Taxes on the adjustments between IFRS and core results take into account, for each individual item included in the adjustment, the tax rate that will finally be applicable to the item based on the jurisdiction where the adjustment will finally have a tax impact. Generally, this results in amortization and impairment of intangible assets and acquisition-related restructuring and integration items having a full tax impact. There is usually a tax impact on other items, although this is not always the case for items arising from legal settlements in certain jurisdictions. Adjustments related to income from associated companies are recorded net of any related tax effect. Due to these factors and the differing effective tax rates in the various jurisdictions, the tax on the total adjustments for continuing operations of USD 4.7 billion to arrive at the core results before tax amounts to USD 581 million. The average tax rate on the adjustments is 12.3%, since the estimated full year core tax charge of 16.0% has been applied to the pre-tax income of the period. | |||||||||||||||
6 For details on discontinued operations reconciliation from IFRS to core net income please refer to page 62. | |||||||||||||||
7 Earnings per share (EPS) is calculated on the amount of net income, attributable to shareholders of Novartis AG. |
58
CORE RESULTS – Reconciliation from IFRS results to core results – Innovative Medicines
Third quarter
(USD millions) | Q3 2020 IFRS results | Amortization of intangible assets 1 | Impairments 2 | Acquisition or divestment of businesses and related items 3 | Other items 4 | Q3 2020 Core results | Q3 2019 Core results | ||||||||
Gross profit | 7 545 | 728 | 58 | 12 | 41 | 8 384 | 8 293 | ||||||||
Operating income | 1 998 | 740 | 341 | 16 | 430 | 3 525 | 3 300 | ||||||||
The following are adjustments to arrive at core gross profit | |||||||||||||||
Cost of goods sold | -2 750 | 728 | 58 | 12 | 41 | -1 911 | -1 880 | ||||||||
The following are adjustments to arrive at core operating income | |||||||||||||||
Selling, general and administration | -2 825 | 1 | 4 | -2 820 | -2 886 | ||||||||||
Research and development | -1 930 | 12 | -14 | -1 932 | -1 978 | ||||||||||
Other income | 174 | -1 | -144 | 29 | 17 | ||||||||||
Other expense | -966 | 284 | 3 | 543 | -136 | -146 | |||||||||
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to in-market products and other production-related intangible assets; research and development includes the amortization of acquired rights for technologies | |||||||||||||||
2 Impairments: cost of goods sold includes impairment charges related to intangible assets; other expense includes impairment charges related to property, plant and equipment | |||||||||||||||
3 Acquisition or divestment of businesses and related items, including restructuring and integration charges: cost of goods sold and other expense include net charges related to acquisitions | |||||||||||||||
4 Other items: cost of goods sold and other expense include restructuring and other charges related to the Group-wide rationalization of manufacturing sites; cost of goods sold, selling, general and administration, research and development, other income and other expense include other restructuring income and charges and related items; selling, general and administration also includes expenses related to COVID-19 donations and adjustments to provisions; research and development includes adjustments to contingent considerations; other income and other expense include fair value adjustments on financial assets; other income also includes net gains from the divestment of products and financial assets; other expense includes legal-related items and a termination fee |
Nine months to September 30
(USD millions) | 9M 2020 IFRS results | Amortization of intangible assets 1 | Impairments 2 | Acquisition or divestment of businesses and related items 3 | Other items 4 | 9M 2020 Core results | 9M 2019 Core results | ||||||||
Gross profit | 22 324 | 2 135 | 58 | 35 | 134 | 24 686 | 23 764 | ||||||||
Operating income | 6 786 | 2 172 | 860 | 87 | 528 | 10 433 | 9 528 | ||||||||
The following are adjustments to arrive at core gross profit | |||||||||||||||
Cost of goods sold | -7 830 | 2 135 | 58 | 35 | 134 | -5 468 | -5 386 | ||||||||
The following are adjustments to arrive at core operating income | |||||||||||||||
Selling, general and administration | -8 446 | 15 | 47 | -8 384 | -8 380 | ||||||||||
Research and development | -6 036 | 37 | 509 | 3 | -94 | -5 581 | -5 604 | ||||||||
Other income | 500 | -1 | -3 | -318 | 178 | 216 | |||||||||
Other expense | -1 556 | 294 | 37 | 759 | -466 | -468 | |||||||||
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to in-market products and other production-related intangible assets; research and development includes the amortization of acquired rights for technologies | |||||||||||||||
2 Impairments: cost of goods sold and research and development include impairment charges related to intangible assets; other expense includes impairment charges related to property, plant and equipment | |||||||||||||||
3 Acquisition or divestment of businesses and related items, including restructuring and integration charges: cost of goods sold, selling, general and administration, research and development and other expense include net charges related to acquisitions; other income and other expense include transitional service-fee income and expenses related to the Alcon distribution | |||||||||||||||
4 Other items: cost of goods sold and other expense include restructuring and other charges related to the Group-wide rationalization of manufacturing sites; cost of goods sold, selling, general and administration, research and development, other income and other expense include other restructuring income and charges and related items; selling, general and administration also includes expenses related to COVID-19 donations and adjustments to provisions; research and development includes adjustments to contingent considerations; other income and other expense include fair value adjustments on financial assets; other income also includes net gains from the divestment of products and financial assets; other expense includes legal-related items and a termination fee |
59
CORE RESULTS – Reconciliation from IFRS results to core results – Sandoz
Third quarter
(USD millions) | Q3 2020 IFRS results | Amortization of intangible assets 1 | Impairments 2 | Acquisition or divestment of businesses and related items | Other items 3 | Q3 2020 Core results | Q3 2019 Core results | ||||||||
Gross profit | 1 222 | 67 | 43 | 31 | 1 363 | 1 338 | |||||||||
Operating income | 395 | 67 | 146 | 50 | 658 | 615 | |||||||||
The following are adjustments to arrive at core gross profit | |||||||||||||||
Cost of goods sold | -1 255 | 67 | 43 | 31 | -1 114 | -1 195 | |||||||||
The following are adjustments to arrive at core operating income | |||||||||||||||
Selling, general and administration | -488 | 2 | -486 | -527 | |||||||||||
Research and development | -216 | 5 | -211 | -197 | |||||||||||
Other income | 34 | -5 | -11 | 18 | 38 | ||||||||||
Other expense | -157 | 103 | 28 | -26 | -37 | ||||||||||
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to in-market products and other production-related intangible assets | |||||||||||||||
2 Impairments: cost of goods sold and research and development include impairment charges related to intangible assets; other income includes an impairment reversal related to property, plant and equipment; other expense includes impairment charges related to property, plant and equipment | |||||||||||||||
3 Other items: cost of goods sold, other income and other expense include net restructuring and other charges related to the Group-wide rationalization of manufacturing sites and other restructuring income and charges and related items; selling, general and administration includes expenses related to COVID-19 donations and adjustments to provisions; other expense includes legal-related items |
Nine months to September 30
(USD millions) | 9M 2020 IFRS results | Amortization of intangible assets 1 | Impairments 2 | Acquisition or divestment of businesses and related items 3 | Other items 4 | 9M 2020 Core results | 9M 2019 Core results | ||||||||
Gross profit | 3 422 | 300 | 85 | 22 | 110 | 3 939 | 3 869 | ||||||||
Operating income | 671 | 300 | 200 | 22 | 613 | 1 806 | 1 577 | ||||||||
The following are adjustments to arrive at core gross profit | |||||||||||||||
Cost of goods sold | -3 869 | 300 | 85 | 22 | 110 | -3 352 | -3 538 | ||||||||
The following are adjustments to arrive at core operating income | |||||||||||||||
Selling, general and administration | -1 504 | 26 | -1 478 | -1 629 | |||||||||||
Research and development | -611 | 5 | -606 | -589 | |||||||||||
Other income | 83 | -5 | -23 | 55 | 87 | ||||||||||
Other expense | -719 | 115 | 500 | -104 | -161 | ||||||||||
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to in-market products and other production-related intangible assets | |||||||||||||||
2 Impairments: cost of goods sold and research and development include impairment charges related to intangible assets; other income includes an impairment reversal related to property, plant and equipment; other expense includes impairment charges related to property, plant and equipment | |||||||||||||||
3 Acquisition or divestment of businesses and related items, including restructuring and integration charges: cost of goods sold includes net charges related to an acquisition | |||||||||||||||
4 Other items: cost of goods sold includes the cumulative amount of the depreciation up to December 31, 2019, recognized with the reclassification of property, plant and equipment out of assets of disposal group held for sale (see Note 3); cost of goods sold and other expense include restructuring and other charges related to the Group-wide rationalization of manufacturing sites; cost of goods sold, other income and other expense include other restructuring income and charges and related items; selling, general and administration includes expenses related to COVID-19 donations and adjustments to provisions; other expense includes a legal provision and legal-related items |
60
CORE RESULTS – Reconciliation from IFRS results to core results – Corporate
Third quarter
(USD millions) | Q3 2020 IFRS results | Amortization of intangible assets | Impairments | Acquisition or divestment of businesses and related items 1 | Other items 2 | Q3 2020 Core results | Q3 2019 Core results | ||||||||
Gross profit | 18 | 18 | 33 | ||||||||||||
Operating income/(loss) | 19 | 4 | -137 | -114 | -167 | ||||||||||
The following are adjustments to arrive at core operating income | |||||||||||||||
Other income | 198 | -14 | -154 | 30 | -43 | ||||||||||
Other expense | -91 | 18 | 17 | -56 | -8 | ||||||||||
1 Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income and other expense include transitional service fee income and expenses related to the Alcon distribution | |||||||||||||||
2 Other items: other income and other expense include fair value adjustments and divestment gains and losses on financial assets, and restructuring income and charges and related items; other expense also includes expenses related to COVID-19 donations |
Nine months to September 30
(USD millions) | 9M 2020 IFRS results | Amortization of intangible assets | Impairments | Acquisition or divestment of businesses and related items 1 | Other items 2 | 9M 2020 Core results | 9M 2019 Core results | ||||||||
Gross profit | 218 | -136 | 82 | 80 | |||||||||||
Operating income/(loss) | 51 | 12 | -387 | -324 | -455 | ||||||||||
The following are adjustments to arrive at core gross profit | |||||||||||||||
Other revenues | 162 | -136 | 26 | 19 | |||||||||||
The following are adjustments to arrive at core operating income | |||||||||||||||
Other income | 516 | -67 | -374 | 75 | 43 | ||||||||||
Other expense | -360 | 79 | 123 | -158 | -190 | ||||||||||
1 Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income and other expense include transitional service fee income and expenses related to the Alcon distribution | |||||||||||||||
2 Other items: other revenues includes a settlement of royalties; other income and other expense include fair value adjustments and divestment gains and losses on financial assets, and restructuring income and charges and related items; other expense also includes adjustments to legal provisions and expenses related to COVID-19 donations |
61
CORE RESULTS – Reconciliation from IFRS results to core results – Discontinued operations 2019
Third quarter
As the Alcon spin-off was completed on April 9, 2019, there were no results of operations from the Alcon business in Q3 2019.
Nine months to September 30
(USD millions) | 9M 2019 IFRS results | Amortization of intangible assets 1 | Impairments | Acquisition or divestment of businesses and related items 2 | Other items 3 | 9M 2019 Core results | |||||||
Gross profit | 949 | 165 | 9 | 1 123 | |||||||||
Operating income of discontinued operations | 71 | 167 | 112 | 350 | |||||||||
Income before taxes of discontinued operations | 58 | 337 | |||||||||||
Taxes 4 | -159 | -59 | |||||||||||
Net loss/income from discontinued operations before gain on distribution of Alcon Inc. to Novartis AG shareholders | -101 | 278 | |||||||||||
Gain on distribution of Alcon Inc. to Novartis AG shareholders | 4 691 | -4 691 | |||||||||||
Net income from discontinued operations | 4 590 | 278 | |||||||||||
Basic EPS (USD) 5 | 2.00 | 0.12 | |||||||||||
The following are adjustments to arrive at core gross profit | |||||||||||||
Cost of goods sold | -860 | 165 | 9 | -686 | |||||||||
The following are adjustments to arrive at core operating income | |||||||||||||
Selling, general and administration | -638 | 14 | -624 | ||||||||||
Research and development | -142 | 2 | 4 | -136 | |||||||||
Other income | 15 | -3 | 12 | ||||||||||
Other expense | -113 | 88 | -25 | ||||||||||
1 Amortization of intangible assets: cost of goods sold includes amortization of acquired rights to in-market products and other production-related intangible assets; research and development includes the amortization of acquired rights for technologies | |||||||||||||
2 Acquisition or divestment of businesses and related items represents the non-taxable non-cash gain related to the distribution of Alcon Inc. (spin-off) to Novartis AG shareholders | |||||||||||||
3 Other items: cost of goods sold, selling, general and administration, research and development and other expense include other restructuring charges and related items; research and development also includes amortization of option rights and the fair value adjustment of a contingent consideration liability; other income includes fair value adjustments on a financial asset; other expense also includes legal-related items | |||||||||||||
4 Taxes on the adjustments between IFRS and core results take into account, for each individual item included in the adjustment, the tax rate that will finally be applicable to the item based on the jurisdiction where the adjustment will finally have a tax impact. Generally, this results in amortization and impairment of intangible assets and acquisition-related restructuring and integration items having a full tax impact. There is usually a tax impact on other items, although this is not always the case for items arising from legal settlements in certain jurisdictions. Due to these factors and the differing effective tax rates in the various jurisdictions, the tax on the total adjustments, excluding the non-taxable non-cash gain on the distribution (spin-off) of Alcon Inc. to Novartis AG shareholders of USD 279 million to arrive at the core results before tax amounts to USD 100 million. The 2019 core tax rate excluding the effect of the gain on distribution of Alcon Inc. to Novartis AG shareholders is 17.5%. | |||||||||||||
5 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG. |
62
Income from associated companies
(USD millions) | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 | |||||
Share of estimated Roche reported results | 271 | 283 | 726 | 695 | |||||
Prior-year adjustment | -64 | -129 | |||||||
Amortization of additional intangible assets recognized by Novartis on initial accounting for the equity interest | -44 | -30 | -127 | -99 | |||||
Partial release of deferred tax liability recognized | 43 | ||||||||
Net income effect from Roche Holding AG | 227 | 253 | 535 | 510 | |||||
Others | -1 | -3 | -1 | ||||||
Income from associated companies | 226 | 253 | 532 | 509 | |||||
Core income from associated companies
(USD millions) | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 | |||||
Income from associated companies | 226 | 253 | 532 | 509 | |||||
Share of estimated Roche core adjustments | 62 | 60 | 234 | 174 | |||||
Roche prior year adjustment | 102 | 161 | |||||||
Core income from associated companies | 288 | 313 | 868 | 844 | |||||
Condensed consolidated changes in net debt
Third quarter
(USD millions) | Q3 2020 | Q3 2019 | |||
Change in cash and cash equivalents | 3 077 | -1 613 | |||
Change in marketable securities, commodities, financial debts and financial derivatives | -1 894 | 68 | |||
Reduction/increase in net debt | 1 183 | -1 545 | |||
Net debt at July 1 | -26 537 | -17 886 | |||
Net debt at September 30 | -25 354 | -19 431 | |||
Nine months to September 30
(USD millions) | 9M 2020 | 9M 2019 | |||
Change in cash and cash equivalents | -2 118 | -4 893 | |||
Change in marketable securities, commodities, financial debts and financial derivatives | -7 298 | 1 646 | |||
Increase in net debt | -9 416 | -3 247 | |||
Net debt at January 1 | -15 938 | -16 184 | |||
Net debt at September 30 | -25 354 | -19 431 | |||
Components of net debt
(USD millions) | Sep 30, 2020 | Sep 30, 2019 | |||
Non-current financial debts | -26 497 | -20 131 | |||
Current financial debts and derivative financial instruments | -9 727 | -8 017 | |||
Total financial debt | -36 224 | -28 148 | |||
Less liquidity: | |||||
Cash and cash equivalents | 8 994 | 8 378 | |||
Marketable securities, commodities, time deposits and derivative financial instruments | 1 876 | 339 | |||
Total liquidity | 10 870 | 8 717 | |||
Net debt at September 30 | -25 354 | -19 431 | |||
Share information
Sep 30, 2020 | Sep 30, 2019 | ||||
Number of shares outstanding | 2 274 506 236 | 2 264 608 111 | |||
Registered share price (CHF) | 79.91 | 86.54 | |||
ADR price (USD) | 86.96 | 86.90 | |||
Market capitalization (USD billions) 1 | 197.2 | 197.5 | |||
Market capitalization (CHF billions) 1 | 181.8 | 196.0 | |||
1 Market capitalization is calculated based on the number of shares outstanding (excluding treasury shares). Market capitalization in USD is based on the market capitalization in CHF converted at the quarter end CHF/USD exchange rate. |
63
Free cash flow
Third quarter
(USD millions) | Q3 2020 | Q3 2019 | |||
Operating income from continuing operations | 2 412 | 2 358 | |||
Adjustments for non-cash items | |||||
Depreciation, amortization and impairments | 1 595 | 1 373 | |||
Change in provisions and other non-current liabilities | 498 | 382 | |||
Other | 109 | 199 | |||
Operating income adjusted for non-cash items | 4 614 | 4 312 | |||
Interest and other financial receipts | 32 | 83 | |||
Interest and other financial payments | -170 | -143 | |||
Taxes paid | -316 | -235 | |||
Payments out of provisions and other net cash movements in non-current liabilities | -968 | -146 | |||
Change in inventory and trade receivables less trade payables | -666 | 17 | |||
Change in other net current assets and other operating cash flow items | 630 | 674 | |||
Net cash flows from operating activities from continuing operations | 3 156 | 4 562 | |||
Purchases of property, plant and equipment | -279 | -357 | |||
Proceeds from sale of property, plant and equipment | 2 | -3 | |||
Purchases of intangible assets | -348 | -205 | |||
Proceeds from sale of intangible assets | 99 | 140 | |||
Purchases of financial assets | -35 | -69 | |||
Proceeds from sale of financial assets 1 | 108 | -91 | |||
Purchases of other non-current assets | -6 | -10 | |||
Proceeds from sale of other non-current assets | 0 | 1 | |||
Free cash flow from continuing operations | 2 697 | 3 968 | |||
Total free cash flow | 2 697 | 3 968 | |||
1 For the third quarter of 2019 free cash flow, proceeds from the sales of financial assets excludes the cash inflows from the sale of a portion of the Alcon Inc. shares recognized by certain consolidated foundations through the Alcon spin-off, which amounted to USD 656 million (Q3 2020: nil). See Note 3. |
64
Free cash flow
Nine months to September 30
(USD millions) | 9M 2020 | 9M 2019 | |||
Operating income from continuing operations | 7 508 | 7 263 | |||
Adjustments for non-cash items | |||||
Depreciation, amortization and impairments | 4 581 | 3 840 | |||
Change in provisions and other non-current liabilities | 1 336 | 1 400 | |||
Other | 431 | -113 | |||
Operating income adjusted for non-cash items | 13 856 | 12 390 | |||
Dividends received from associated companies and others | 489 | 463 | |||
Interest and other financial receipts | 330 | 233 | |||
Interest and other financial payments | -510 | -565 | |||
Taxes paid | -1 215 | -1 195 | |||
Payments out of provisions and other net cash movements in non-current liabilities | -1 792 | -662 | |||
Change in inventory and trade receivables less trade payables | -1 730 | -1 289 | |||
Change in other net current assets and other operating cash flow items | 217 | 632 | |||
Net cash flows from operating activities from continuing operations | 9 645 | 10 007 | |||
Purchases of property, plant and equipment | -754 | -918 | |||
Proceeds from sale of property, plant and equipment | 6 | 809 | |||
Purchases of intangible assets | -808 | -703 | |||
Proceeds from sale of intangible assets | 204 | 421 | |||
Purchases of financial assets | -125 | -223 | |||
Proceeds from sale of financial assets 1 | 235 | 86 | |||
Purchases of other non-current assets | -54 | -34 | |||
Proceeds from sale of other non-current assets | 0 | 4 | |||
Free cash flow from continuing operations | 8 349 | 9 449 | |||
Free cash flow from discontinued operations 2 | -62 | ||||
Total free cash flow | 8 349 | 9 387 | |||
1 For the nine-month period of 2020 free cash flow, proceeds from the sales of financial assets excludes the cash inflows from the sale of a portion of the Alcon Inc. shares recognized by certain consolidated foundations through the Alcon spin-off, which amounted to USD 232 million (9M 2019: USD 656 million). See Note 3. | |||||
2 In the nine-month period of 2019, the free cash flow from discontinued operation was a cash outflow of USD 62 million consisting of USD 78 million net cash inflows from operating activities from discontinued operations, USD 1.1 billion net cash flows used in investing activities from discontinued operations adjusted by USD 283 million of net cash outflows for acquisitions and divestments of businesses, by USD 654 million of cash outflows attributable to the spin-off of the Alcon business and by USD 25 million of other net investing cash outflows. |
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Effects of currency fluctuations
Principal currency translation rates
(USD per unit) | Average rates Q3 2020 | Average rates Q3 2019 | Average rates 9M 2020 | Average rates 9M 2019 | Period-end rates Sep 30, 2020 | Period-end rates Sep 30, 2019 | |||||||
1 CHF | 1.087 | 1.014 | 1.052 | 1.005 | 1.085 | 1.008 | |||||||
1 CNY | 0.145 | 0.143 | 0.143 | 0.146 | 0.147 | 0.140 | |||||||
1 EUR | 1.169 | 1.112 | 1.124 | 1.124 | 1.173 | 1.094 | |||||||
1 GBP | 1.292 | 1.232 | 1.271 | 1.273 | 1.284 | 1.229 | |||||||
100 JPY | 0.942 | 0.932 | 0.930 | 0.917 | 0.947 | 0.927 | |||||||
100 RUB | 1.357 | 1.548 | 1.415 | 1.538 | 1.261 | 1.546 | |||||||
Currency impact on key figures
The following table provides a summary of the currency impact on key Group figures due to their conversion into US dollars, the Group’s reporting currency, of the financial data from entities reporting in non-US dollars. Constant currency (cc) calculations apply the exchange rates of the prior year period to the current period financial data for entities reporting in non-US dollars.
Third quarter
Change in USD % Q3 2020 | Change in constant currencies % Q3 2020 | Percentage point currency impact Q3 2020 | Change in USD % Q3 2019 | Change in constant currencies % Q3 2019 | Percentage point currency impact Q3 2019 | ||||||||
Total Group – Continuing operations | |||||||||||||
Net sales to third parties | 1 | 0 | 1 | 10 | 13 | -3 | |||||||
Operating income | 2 | 9 | -7 | 5 | 9 | -4 | |||||||
Net income | -5 | 0 | -5 | 8 | 12 | -4 | |||||||
Basic earnings per share (USD) | -6 | 0 | -6 | 11 | 14 | -3 | |||||||
Core operating income | 9 | 11 | -2 | 15 | 18 | -3 | |||||||
Core net income | 8 | 10 | -2 | 14 | 17 | -3 | |||||||
Core basic earnings per share (USD) | 8 | 9 | -1 | 16 | 19 | -3 | |||||||
Innovative Medicines | |||||||||||||
Net sales to third parties | 2 | 1 | 1 | 13 | 15 | -2 | |||||||
Operating income | -17 | -11 | -6 | 10 | 13 | -3 | |||||||
Core operating income | 7 | 9 | -2 | 14 | 16 | -2 | |||||||
Sandoz | |||||||||||||
Net sales to third parties | -2 | -3 | 1 | 3 | 5 | -2 | |||||||
Operating income | 107 | 113 | -6 | -47 | -42 | -5 | |||||||
Core operating income | 7 | 8 | -1 | 14 | 18 | -4 | |||||||
Corporate | |||||||||||||
Operating income/(loss) | nm | nm | nm | 22 | 21 | 1 | |||||||
Core operating loss | 32 | 36 | -4 | 7 | 6 | 1 | |||||||
nm = not meaningful |
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Currency impact on key figures
Nine months to September 30
Change in USD % 9M 2020 | Change in constant currencies % 9M 2020 | Percentage point currency impact 9M 2020 | Change in USD % 9M 2019 | Change in constant currencies % 9M 2019 | Percentage point currency impact 9M 2019 | ||||||||
Total Group – Continuing operations | |||||||||||||
Net sales to third parties | 2 | 4 | -2 | 5 | 9 | -4 | |||||||
Operating income | 3 | 11 | -8 | 3 | 10 | -7 | |||||||
Net income | -1 | 6 | -7 | -48 | -45 | -3 | |||||||
Basic earnings per share (USD) | 0 | 7 | -7 | -47 | -44 | -3 | |||||||
Core operating income | 12 | 16 | -4 | 13 | 18 | -5 | |||||||
Core net income | 11 | 15 | -4 | 11 | 16 | -5 | |||||||
Core basic earnings per share (USD) | 12 | 16 | -4 | 12 | 17 | -5 | |||||||
Innovative Medicines | |||||||||||||
Net sales to third parties | 4 | 5 | -1 | 7 | 11 | -4 | |||||||
Operating income | -4 | 2 | -6 | 8 | 14 | -6 | |||||||
Core operating income | 9 | 13 | -4 | 14 | 19 | -5 | |||||||
Sandoz | |||||||||||||
Net sales to third parties | -2 | 0 | -2 | -2 | 2 | -4 | |||||||
Operating income | -10 | -1 | -9 | -32 | -25 | -7 | |||||||
Core operating income | 15 | 19 | -4 | 4 | 10 | -6 | |||||||
Corporate | |||||||||||||
Operating income/(loss) | nm | nm | nm | 10 | 8 | 2 | |||||||
Core operating loss | 29 | 31 | -2 | 0 | -2 | 2 | |||||||
nm = not meaningful |
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Disclaimer
This press release contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, that can generally be identified by words such as “continuing,” “guidance,” “expected,” “to grow,” “continues,” “to deliver,” “to evolve,” “continue,” “to help,” “remain,” “remains,” “growth,” “to supplement,” “investigational,” “believe,” “ongoing,” “demonstrating,” “ to support,” “evolve,” “taking,” “allowing,” “will,” “launch,” “estimated,” “impact,” “submissions,” “focus,” “launches,” “innovation,” “potential,” “commitments,” “commitment,” “pipeline,” “aims,” “would,” “growing,” “expanding,” “priority,” “outlook,” “unforeseen,” “forecast,” “prevail,” “enter,” “to improve,” “transformative,” “innovative,” “manageable disruptions,” “ongoing disruptions,” “to facilitate,” “ambition,” “trends,” “expands,” “to progress,” “would,” “to delay,” “anticipate,” “expect,” “to meet,” “continuously,” “committed,” or similar expressions, or by express or implied discussions regarding potential new products, potential new indications for existing products, potential product launches, or regarding potential future revenues from any such products; or regarding the impact of the COVID-19 pandemic on certain therapeutic areas including dermatology, ophthalmology and the Sandoz retail business, and on drug development operations; or regarding potential future, pending or announced transactions; regarding potential future sales or earnings of the Group or any of its divisions; or by discussions of strategy, plans, expectations or intentions; or regarding the Group’s liquidity or cash flow positions and its ability to meet its ongoing financial obligations and operational needs; or regarding our collaboration with the African Union to supply medicines for treatment of COVID-19. Such forward-looking statements are based on the current beliefs and expectations of management regarding future events, and are subject to significant known and unknown risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking statements. You should not place undue reliance on these statements. In particular, our expectations could be affected by, among other things: liquidity or cash flow disruptions affecting our ability to meet our ongoing financial obligations and to support our ongoing business activities; the impact of the COVID-19 pandemic on enrollment in, initiation and completion of our clinical trials in the future, and research and development timelines; the impact of a partial or complete failure of the return to normal global healthcare systems including prescription dynamics, particularly in ophthalmology, in the fourth quarter of 2020; global trends toward healthcare cost containment, including ongoing government, payer and general public pricing and reimbursement pressures and requirements for increased pricing transparency; uncertainties regarding potential significant breaches of data security or data privacy, or disruptions of our information technology systems; regulatory actions or delays or government regulation generally, including potential regulatory actions or delays with respect to the development of the products described in this press release; the potential that the strategic benefits, synergies or opportunities expected from the transactions described, may not be realized or may be more difficult or take longer to realize than expected; the uncertainties in the research and development of new healthcare products, including clinical trial results and additional analysis of existing clinical data; our ability to obtain or maintain proprietary intellectual property protection, including the ultimate extent of the impact on Novartis of the loss of patent protection and exclusivity on key products; safety, quality, data integrity, or manufacturing issues; uncertainties involved in the development or adoption of potentially transformational technologies and business models; uncertainties regarding actual or potential legal proceedings, investigations or disputes; our performance on environmental, social and governance measures; general political, economic and business conditions, including the effects of and efforts to mitigate pandemic diseases such as COVID-19; uncertainties regarding future global exchange rates; uncertainties regarding future demand for our products; and other risks and factors referred to in Novartis AG’s current Form 20-F on file with the US Securities and Exchange Commission. 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 as a result of new information, future events or otherwise.
All product names appearing in italics are trademarks owned by or licensed to Novartis Group companies.
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About Novartis
Novartis is reimagining medicine to improve and extend people’s lives. As a leading global medicines company, we use innovative science and digital technologies to create transformative treatments in areas of great medical need. In our quest to find new medicines, we consistently rank among the world’s top companies investing in research and development. Novartis products reach nearly 800 million people globally and we are finding innovative ways to expand access to our latest treatments. About 110,000 people of more than 140 nationalities work at Novartis around the world. Find out more at https://www.novartis.com
Novartis will conduct a conference call with investors to discuss this news release today at 14:00 Central European time and 9:00 Eastern Time. A simultaneous webcast of the call for investors and other interested parties may be accessed by visiting the Novartis website. A replay will be available after the live webcast by visiting. https://www.novartis.com/investors/event-calendar
Detailed financial results accompanying this press release are included in the condensed interim financial report at the link below. Additional information is provided on Novartis divisions and pipeline of selected compounds in late stage development and a copy of today's earnings call presentation can be found at. https://www.novartis.com/investors/event-calendar
Important dates
November 24, 2020 | Meet Novartis Management, to be held virtually | |
January 26, 2021 | Fourth quarter & Full Year 2020 results | |
March 2, 2021 | Annual General Meeting |
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