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Novartis Second Quarter and Half Year 2023 Condensed Interim Financial Report – Supplementary Data
INDEX Page
GROUP AND DIVISIONAL OPERATING PERFORMANCE
Group 3
Innovative Medicines 7
Sandoz 13
CASH FLOW AND GROUP BALANCE SHEET 15
INNOVATION REVIEW 18
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Consolidated income statements 21
Consolidated statements of comprehensive income 23
Consolidated balance sheets 24
Consolidated statements of changes in equity 25
Consolidated statements of cash flows 27
Notes to condensed interim consolidated financial statements, including update on legal proceedings 29
SUPPLEMENTARY INFORMATION 48
CORE RESULTS
Reconciliation from IFRS results to core results 50
Group 52
Innovative Medicines 54
Sandoz 55
Corporate 56
FREE CASH FLOW 57
ADDITIONAL INFORMATION
Net debt 59
Share information 59
Effects of currency fluctuations 60
DISCLAIMER 62
2
Group
Key Figures
Second quarter and half year
Q2 2023 USD m | Q2 2022 USD m | % change USD | % change cc1 | H1 2023 USD m | H1 2022 USD m | % change USD | % change cc1 | ||||||||||
Net sales to third parties | 13 622 | 12 781 | 7 | 9 | 26 575 | 25 312 | 5 | 8 | |||||||||
Divisional operating income 2 | 3 211 | 2 563 | 25 | 41 | 6 205 | 5 584 | 11 | 24 | |||||||||
Corporate income and expense, net 2 | -291 | -335 | 13 | 16 | -429 | -504 | 15 | 17 | |||||||||
Operating income | 2 920 | 2 228 | 31 | 50 | 5 776 | 5 080 | 14 | 28 | |||||||||
As % of net sales | 21.4 | 17.4 | 21.7 | 20.1 | |||||||||||||
Loss from associated companies | -2 | nm | nm | -3 | -2 | -50 | 11 | ||||||||||
Interest expense | -224 | -202 | -11 | -17 | -435 | -403 | -8 | -12 | |||||||||
Other financial income and expense | 75 | 16 | nm | nm | 171 | 36 | nm | nm | |||||||||
Income taxes | -452 | -347 | -30 | -47 | -898 | -797 | -13 | -27 | |||||||||
Net income | 2 317 | 1 695 | 37 | 54 | 4 611 | 3 914 | 18 | 32 | |||||||||
Basic earnings per share (USD) | 1.11 | 0.77 | 44 | 62 | 2.20 | 1.77 | 24 | 39 | |||||||||
Net cash flows from operating activities | 3 576 | 3 755 | -5 | 6 533 | 5 404 | 21 | |||||||||||
Non-IFRS measures 1 | |||||||||||||||||
Free cash flow 3 | 3 275 | 3 498 | -6 | 5 995 | 4 890 | 23 | |||||||||||
Core operating income | 4 668 | 4 270 | 9 | 17 | 9 081 | 8 353 | 9 | 16 | |||||||||
As % of net sales | 34.3 | 33.4 | 34.2 | 33.0 | |||||||||||||
Core net income | 3 811 | 3 431 | 11 | 19 | 7 425 | 6 682 | 11 | 19 | |||||||||
Core basic earnings per share (USD) | 1.83 | 1.56 | 17 | 25 | 3.54 | 3.02 | 17 | 25 | |||||||||
1 Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 48. Unless otherwise noted, all growth rates in this release refer to same period in prior year. | |||||||||||||||||
2 Restated to reflect the transfers of the Sandoz Division's biotechnology manufacturing services to other companies' activities and the Coartem brand to the Innovative Medicines Division that was effective as of January 1, 2023 (see Note 9 in this Condensed Interim Financial Report). | |||||||||||||||||
3 Effective January 1, 2023, Novartis revised its definition of free cash flow, to define free cash flow as net cash flows from operating activities less purchases of property, plant and equipment. To aid in comparability, the prior year free cash flow amounts have been revised to conform with the new free cash flow definition. See page 48 of the Condensed Interim Financial Report. | |||||||||||||||||
nm = not meaningful |
3
Strategy Update
Our focus
With our new focused strategy unveiled in 2022, Novartis is transforming into a “pure-play” Innovative Medicines business. We focus on five core therapeutic areas (cardiovascular, immunology, neuroscience, solid tumors and hematology), with multiple significant in-market and pipeline assets in each of these areas, that address high disease burden and have substantial growth potential. In addition to two established technology platforms (chemistry and biotherapeutics), three emerging platforms (gene & cell therapy, radioligand therapy, and xRNA) are being prioritized for continued investment into new R&D capabilities and manufacturing scale. Geographically, we are focused on growing in our priority geographies - the US, China, Germany and Japan.
Our priorities
1. Accelerate growth: Renewed attention to deliver high-value medicines (NMEs) and focus on launch excellence, with a rich pipeline across our core therapeutic areas.
2. Deliver returns: Continuing to embed operational excellence and deliver improved financials. Novartis remains disciplined and shareholder-focused in our approach to capital allocation, with substantial cash generation and a strong capital structure supporting continued flexibility.
3. Strengthening foundations: Unleashing the power of our people, scaling data science and technology and continuing to build trust with society.
Sandoz planned spin-off
The Novartis Board of Directors has unanimously endorsed the proposed separation of Sandoz to create an independent company by way of a 100% spin-off.
As a next step, shareholders of Novartis will be invited to vote on the proposed spin-off and a related reduction of the share capital of Novartis AG at an Extraordinary General Meeting, planned to be held on Friday, 15 September 2023. The invitation to the EGM, a Shareholder Brochure and listing prospectus, which will be published by Sandoz, are planned to be distributed in August 2023.
Sandoz is planned to be listed on the SIX Swiss Exchange, with an American Depositary Receipt (ADR) program in the US.
The proposed spin-off is planned to occur early in the fourth quarter of 2023. In addition to Novartis shareholder approval, completion of the proposed Sandoz spin-off is subject to satisfaction of certain conditions, including obtaining the necessary approvals for the listing of the Sandoz shares, no order prohibiting (and no other event outside the control of Novartis preventing) the spin-off and no material adverse change.*
Entresto patent update (July)
Following a negative decision from the U.S. District Court for the District of Delaware, Novartis will appeal to the U.S. Court of Appeals for the Federal Circuit to uphold validity of Novartis patent covering Entresto and combinations of sacubitril and valsartan. No generics have tentative or final approval in the US. Any commercial launch of a generic Entresto product prior to the final outcome of Novartis combination patent appeal, or ongoing litigations involving other patents, may be at risk of later litigation developments.
* There can be no assurance regarding the ultimate timing of the proposed transaction or that the transaction will be completed. Further details of the proposed spin-off will be provided at a later date.
4
Financials
Second quarter
Net sales
Net sales were USD 13.6 billion (+7%, +9% cc) in the second quarter driven by volume growth of 14 percentage points, price erosion of 2 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 expense of USD 291 million in the second quarter compared to an expense of USD 335 million in the prior year, mainly driven by lower restructuring costs, a favorable stamp duties tax settlement and higher contributions from the Novartis Venture Fund, partly offset by lower fair value adjustment on contingent receivables related to intellectual property rights.
Operating income
Operating income was USD 2.9 billion (31%, +50% cc), mainly driven by higher sales and lower restructuring charges.
Core operating income was USD 4.7 billion (+9%, +17% cc), mainly driven by higher sales. Core operating income margin was 34.3% of net sales, increasing by 0.9 percentage points (+2.5 percentage points cc).
Interest expense and other financial income/expense
Interest expense amounted to USD 224 million broadly in line with prior year at USD 202 million.
Other financial income and expense amounted to an income of USD 75 million compared to USD 16 million in the prior year, as higher interest income was only partly offset by higher currency losses.
Core other financial income and expense amounted to an income of USD 111 million compared to USD 61 million in the prior year, as higher interest income was only partly offset by higher currency losses.
Income taxes
The tax rate in the second quarter was 16.3% compared to 17.0% in the prior year. The decrease from the prior year was mainly the result of a change in profit mix.
The core tax rate (core taxes as a percentage of core income before tax) was 16.3% compared to 16.9% in the prior year. The decrease from the prior year was mainly the result of a change in profit mix.
Net income, EPS and free cash flow
Net income was USD 2.3 billion (+37%, +54% cc), mainly due to higher operating income. EPS was USD 1.11 (+44%, +62% cc), growing faster than net income, benefiting from lower weighted average number of shares outstanding.
Core net income was USD 3.8 billion (+11%, +19% cc), mainly due to higher core operating income. Core EPS was USD 1.83 (+17%, +25% cc), growing faster than core net income, benefiting from lower weighted average number of shares outstanding.
Free cash flow amounted to USD 3.3 billion (-6% USD), compared with USD 3.5 billion in the prior year quarter. This decrease was driven by the lower net cash flows from operating activities.
First half
Net sales
Net sales were USD 26.6 billion (+5%, +8% cc) in the first half driven by volume growth of 15 percentage points, price erosion of 3 percentage points and the negative impact from generic competition of 4 percentage points.
5
Corporate income and expense, net
Corporate income and expense, which includes the cost of Group headquarter and coordination functions, amounted to an expense of USD 429 million, compared to an expense of USD 504 million in the first half of 2022, mainly driven by higher contributions from the Novartis Venture Fund, higher fair value adjustment on contingent receivables related to intellectual property rights and a favorable stamp duties tax settlement.
Operating income
Operating income was USD 5.8 billion (14%, +28% cc), mainly driven by higher sales.
Core operating income was USD 9.1 billion (+9%, +16% cc), mainly driven higher sales. Core operating income margin was 34.2% of net sales, increasing by 1.2 percentage points (+2.4 percentage points cc).
Interest expense and other financial income/expense
Interest expense amounted to USD 435 million broadly in line with prior year at USD 403 million.
Other financial income and expense amounted to an income of USD 171 million compared to USD 36 million in the prior year, as higher interest income was only partly offset by higher currency losses.
Core other financial income and expense amounted to an income of USD 228 million compared to USD 93 million in the prior year, as higher interest income was only partly offset by higher currency losses.
Income taxes
The tax rate in the first half was 16.3% compared to 16.9% in the prior year period. The current year tax rate was favorably impacted by the effect of non-taxable income recognized related to a legal matter. Excluding this impact, the current year tax rate would have been 16.7%. The decrease from the prior year was mainly the result of a change in profit mix.
The core tax rate (core taxes as a percentage of core income before tax) was 16.3% in the first half and 16.9% in the prior year period. The decrease from the prior year was mainly the result of a change in profit mix.
Net income, EPS and free cash flow
Net income was USD 4.6 billion (+18%, +32% cc), mainly due to higher operating income. EPS was USD 2.20 (+24%, +39% cc), growing faster than net income, benefiting from lower weighted average number of shares outstanding.
Core net income was USD 7.4 billion (+11%, +19% cc), mainly due to higher core operating income. Core EPS was USD 3.54 (+17%, +25% cc), growing faster than core net income, benefiting from lower weighted average number of shares outstanding.
Free cash flow amounted to USD 6.0 billion (+23% USD), compared with USD 4.9 billion in the prior year period driven by higher net cash flows from operating activities.
6
Innovative Medicines
Q2 2023 USD m | Q2 2022 restated USD m1 | % change USD | % change cc | H1 2023 USD m | H1 2022 restated USD m1 | % change USD | % change cc | ||||||||||
Net sales to third parties | 11 243 | 10 525 | 7 | 9 | 21 813 | 20 755 | 5 | 8 | |||||||||
Operating income | 2 999 | 2 206 | 36 | 52 | 5 674 | 4 833 | 17 | 30 | |||||||||
As % of net sales | 26.7 | 21.0 | 26.0 | 23.3 | |||||||||||||
Core operating income | 4 387 | 3 911 | 12 | 20 | 8 475 | 7 583 | 12 | 19 | |||||||||
As % of net sales | 39.0 | 37.2 | 38.9 | 36.5 | |||||||||||||
1 Restated to reflect the transfers of the Sandoz Division's biotechnology manufacturing services to other companies' activities and the Coartem brand to the Innovative Medicines Division that was effective as of January 1, 2023 (see Note 9 in this Condensed Interim Financial Report). |
Second quarter
Net sales
Net sales were USD 11.2 billion (+7%, +9% cc) with volume contributing 15 percentage points to growth. Generic competition had a negative impact of 4 percentage points and pricing had a negative impact of 2 percentage points. Sales in the US were USD 4.5 billion (+14%) and in the rest of the world USD 6.7 billion (+3%, +7% cc).
Sales growth was mainly driven by continued strong performance from Entresto (USD 1.5 billion, +35%, +37% cc), Kesimpta (USD 489 million, +105%, +105% cc), Pluvicto (USD 240 million), Kisqali (USD 493 million, +60%, +66% cc) and Scemblix (USD 106 million, +242%, +248% cc), partly offset by generic competition mainly for Gilenya.
In the US (USD 4.5 billion, +14%), sales growth was mainly driven by Pluvicto, Entresto, Kesimpta, Kisqali and Scemblix, partly offset by the impact of generic competition on Gilenya. In Europe (USD 3.5 billion, 0%, +2% cc), sales growth was driven by Entresto, Kisqali and Kesimpta, partly offset by increased generic competition for Lucentis and Gilenya. Emerging Growth Markets grew +7% (+17% cc), which includes China sales of USD 0.9 billion (+10%, +16% cc), where growth was mainly driven by Entresto and Cosentyx.
Operating income
Operating income was USD 3.0 billion (+36%, +52% cc), mainly driven by higher sales and lower restructuring charges. Operating income margin was 26.7% of net sales, increasing 5.7 percentage points (+8.1 percentage points in cc).
Core adjustments were USD 1.4 billion, mainly due to amortization and impairment, compared to USD 1.7 billion in prior year. Core adjustments decreased compared to prior year, mainly due to lower restructuring charges.
Core operating income was USD 4.4 billion (+12%, +20% cc), mainly driven by higher gross sales. Core operating income margin was 39.0% of net sales, increasing 1.8 percentage points (+3.4 percentage points cc). Other revenue and sales to other segments as a percentage of sales decreased by 0.2 percentage points (cc). Core cost of goods sold as a percentage of sales increased by 0.1 percentage points (cc). Core R&D expenses as a percentage of net sales decreased by 1.3 percentage points (cc). Core SG&A expenses as a percentage of net sales decreased by 2.2 percentage points (cc). Core other income and expense as a percentage of net sales increased the margin by 0.2 percentage points (cc).
First half
Net sales
Net sales were USD 21.8 billion (+5%, +8% cc) with volume contributing 16 percentage points to growth. Generic competition had a negative impact of 5 percentage points and pricing had a negative impact of 3 percentage points. Sales in the US were USD 8.6 billion (+12%) and in the rest of the world USD 13.2 billion (+1%, +6% cc).
Sales growth was mainly driven by continued strong performance from Entresto (USD 2.9 billion, +31%, +35% cc), Kesimpta (USD 873 million, +101%, +103% cc), Pluvicto (USD 451 million) and Kisqali (USD 908 million, +66%, +73% cc), partly offset by generic competition mainly for Gilenya.
7
In the US (USD 8.6 billion, +12%), sales growth was mainly driven by Pluvicto, Entresto, Kesimpta, Kisqali and Scemblix, partly offset by the impact of generic competition on Gilenya. In Europe (USD 6.9 billion, -1%, +2% cc), sales growth was driven by Entresto, Kisqali, Kesimpta and Leqvio, partly offset by increased generic competition for Gilenya and Lucentis. Emerging Growth Markets grew +8% (+16% cc), which includes China sales of USD 1.7 billion (+4%, +11% cc), where growth was mainly driven by Entresto and Cosentyx.
Operating income
Operating income was USD 5.7 billion (+17%, +30% cc), mainly driven by higher sales. Other income from legal matters was offset by higher impairments. Operating income margin was 26.0% of net sales, increasing 2.7 percentage points (+4.7 percentage points in cc).
Core adjustments were USD 2.8 billion, mainly due to amortization and impairment, compared to USD 2.7 billion in prior year. Core adjustments increased compared to prior year, mainly due to higher impairment and amortization, partly offset by other income from legal matters.
Core operating income was USD 8.5 billion (+12%, +19% cc), mainly driven by higher sales. Core operating income margin was 38.9% of net sales, increasing 2.4 percentage points (+3.6 percentage points cc). Other revenue and sales to other segments as a percentage of sales decreased by 0.2 percentage points (cc). Core cost of goods sold as a percentage of sales decreased by 0.2 percentage points (cc). Core R&D expenses as a percentage of net sales decreased by 1.1 percentage points (cc). Core SG&A expenses as a percentage of net sales decreased by 2.4 percentage points (cc). Core other income and expense as a percentage of net sales increased the margin by 0.1 percentage points (cc).
Product commentary (relating to Q2 performance)
Cardiovascular
Q2 2023 | Q2 2022 | % change | % change | H1 2023 | H1 2022 | % change | % change | ||||||||||
USD m | USD m | USD | cc | USD m | USD m | USD | cc | ||||||||||
Cardiovascular | |||||||||||||||||
Entresto | 1 516 | 1 125 | 35 | 37 | 2 915 | 2 218 | 31 | 35 | |||||||||
Leqvio | 78 | 22 | 255 | 249 | 142 | 36 | 294 | 293 | |||||||||
Total Cardiovascular | 1 594 | 1 147 | 39 | 41 | 3 057 | 2 254 | 36 | 39 | |||||||||
Entresto (USD 1,516 million, +35%, +37% cc) sustained robust demand-led growth benefitting from the adoption of guideline-directed medical therapy across regions. In the US, Novartis is in ANDA litigation with generic manufacturers. In July 2023, the U.S. District Court for the District of Delaware issued a negative decision regarding the validity of Novartis patent covering Entresto and combinations of sacubitril and valsartan, which expires in 2025 (with pediatric exclusivity). Novartis will appeal to reverse the decision to uphold validity of the combination patent. No generics have tentative or final approval in the US. Any commercial launch of a generic Entresto product prior to the final outcome of Novartis combination patent appeal, or ongoing litigations involving other patents, may be at risk of later litigation developments.
Leqvio (USD 78 million, +255%, +249% cc) launch in the US and other markets is ongoing, with focus on patient on-boarding, removing access hurdles and enhancing medical education. In the US, Leqvio is covered at or near label for 76% of patients. More than 50% of Leqvio source of business in the US is now through “Buy and Bill” acquisition model. Leqvio is now approved in 82 countries. Novartis obtained global rights to develop, manufacture and commercialize Leqvio under a license and collaboration agreement with Alnylam Pharmaceuticals. In July 2023, FDA expanded the label with: updated indication to include primary hyperlipidemia, less restrictive language for use for statin therapy, broader population from ORION-11 and removal of several adverse reactions from safety section.
8
Immunology
Q2 2023 | Q2 2022 | % change | % change | H1 2023 | H1 2022 | % change | % change | ||||||||||
USD m | USD m | USD | cc | USD m | USD m | USD | cc | ||||||||||
Immunology | |||||||||||||||||
Cosentyx | 1 272 | 1 275 | 0 | 1 | 2 348 | 2 434 | -4 | -1 | |||||||||
Xolair 1 | 362 | 352 | 3 | 5 | 716 | 720 | -1 | 3 | |||||||||
Ilaris | 316 | 275 | 15 | 17 | 644 | 560 | 15 | 18 | |||||||||
Other | 1 | nm | nm | ||||||||||||||
Total Immunology | 1 950 | 1 902 | 3 | 4 | 3 708 | 3 715 | 0 | 2 | |||||||||
1 Net sales reflect Xolair sales for all indications. | |||||||||||||||||
nm = not meaningful |
Cosentyx (USD 1,272 million, 0%, +1% cc) sales stabilized with continued demand growth across key regions, offset by US revenue deduction, mainly related to channel mix. Ex-US sales grew +18% (cc). Since initial approval in 2015, Cosentyx has proven its sustained efficacy and consistent safety profile and has treated over 1 million patients worldwide across six systemic inflammatory conditions. In May 2023, the European Commission approved Cosentyx as the first and only IL-17A inhibitor for hidradenitis suppurativa (HS) and the first new biologic therapy for HS in nearly a decade. Cosentyx HS was launched in Germany in June 2023 and FDA approval is expected in H2 2023.
Xolair (USD 362 million, +3%, +5% cc) sales grew in Emerging Growth Markets offset by lower sales in other markets. Novartis co-promotes Xolair with Genentech in the US and shares a portion of revenue as operating income but does not record any US sales.
Ilaris (USD 316 million, +15%, +17% cc) sales grew in the US, Emerging Growth Markets and Japan. Contributors to growth include the Still’s disease indications (SJIA/AOSD) in the US and Europe, as well as strong performance for the Familial Mediterranean Fever (FMF) indication in key markets worldwide.
Neuroscience
Q2 2023 | Q2 2022 | % change | % change | H1 2023 | H1 2022 | % change | % change | ||||||||||
USD m | USD m | USD | cc | USD m | USD m | USD | cc | ||||||||||
Neuroscience | |||||||||||||||||
Kesimpta | 489 | 239 | 105 | 105 | 873 | 434 | 101 | 103 | |||||||||
Zolgensma | 311 | 379 | -18 | -16 | 620 | 742 | -16 | -15 | |||||||||
Mayzent | 94 | 85 | 11 | 11 | 183 | 164 | 12 | 13 | |||||||||
Aimovig | 67 | 55 | 22 | 24 | 128 | 109 | 17 | 21 | |||||||||
Other | 1 | nm | nm | ||||||||||||||
Total Neuroscience | 961 | 758 | 27 | 28 | 1 804 | 1 450 | 24 | 26 | |||||||||
nm = not meaningful |
Kesimpta (USD 489 million, +105%, +105% cc) sales growth across all regions driven by increased demand and strong access. Kesimpta is a targeted B-cell therapy that can deliver powerful and sustained high efficacy, with a favorable safety and tolerability profile and the flexibility of an at home self-administration for a broad population of RMS patients. Kesimpta is now approved in 87 countries with nearly 45,000 patients treated.
Zolgensma (USD 311 million, -18%, -16% cc) sales declined in the US as a result of fewer prevalent patients, and in Europe mainly due to price mix and other one-time events in Q2 2022. The number of patients treated globally remained relatively stable. Zolgensma is now approved in 50 countries.
Mayzent (USD 94 million, +11%, +11% cc) sales grew mainly in Europe. Sales continued to grow in patients with multiple sclerosis showing signs of progression despite being on other treatments. Mayzent is an oral disease-modifying therapy studied and proven to delay disease progression in a broad SPMS patient population.
Aimovig (USD 67 million, ex-US, ex-Japan +22%, +24% cc) sales grew in Europe. Aimovig is reimbursed in 32 markets and has been prescribed to over 806,000 patients worldwide.
9
SOLID TUMORS
Q2 2023 | Q2 2022 | % change | % change | H1 2023 | H1 2022 | % change | % change | ||||||||||
USD m | USD m | USD | cc | USD m | USD m | USD | cc | ||||||||||
Solid Tumors | |||||||||||||||||
Tafinlar + Mekinist 1 | 496 | 452 | 10 | 13 | 954 | 855 | 12 | 15 | |||||||||
Kisqali | 493 | 308 | 60 | 66 | 908 | 547 | 66 | 73 | |||||||||
Pluvicto | 240 | 10 | nm | nm | 451 | 12 | nm | nm | |||||||||
Lutathera | 150 | 86 | 74 | 75 | 299 | 211 | 42 | 43 | |||||||||
Piqray/Vijoice | 130 | 85 | 53 | 54 | 246 | 158 | 56 | 57 | |||||||||
Votrient | 106 | 124 | -15 | -13 | 211 | 253 | -17 | -15 | |||||||||
Tabrecta | 41 | 30 | 37 | 37 | 77 | 61 | 26 | 27 | |||||||||
Other | 1 | nm | nm | ||||||||||||||
Total Solid Tumors | 1 656 | 1 095 | 51 | 54 | 3 147 | 2 097 | 50 | 54 | |||||||||
1 Majority of sales for Mekinist and Tafinlar are combination, but both can be used as monotherapy. | |||||||||||||||||
nm = not meaningful |
Tafinlar + Mekinist (USD 496 million, +10%, +13% cc) sales grew across all regions, driven by demand in BRAF+ adjuvant melanoma and NSCLC indications, while maintaining demand in the highly competitive BRAF+ metastatic melanoma market. The US also posted strong growth in the tumor agnostic indication (approved in June 2022). Tafinlar + Mekinist remains the worldwide targeted therapy leader in BRAF+ melanoma.
Kisqali (USD 493 million, +60%, +66% cc) sales grew strongly across all regions, based on increasing recognition of its consistently reported overall survival and quality of life benefits in HR+/HER2- advanced breast cancer. Updates to the NCCN Clinical Practice Guidelines in Oncology (NCCN Guidelines®) for breast cancer, released in January 2023, recommend ribociclib (Kisqali) as the only Category 1 Preferred CDK4/6 inhibitor for first-line treatment of patients with HR+/HER2- advanced breast cancer in combination with an aromatase inhibitor (AI). In March 2023, positive topline results were announced from an interim analysis of NATALEE, a Phase III trial evaluating ribociclib plus endocrine therapy (ET) in a broad population of patients with HR+/HER2- early breast cancer at risk of recurrence. The positive primary results were presented in June 2023 at ASCO, and data showed that Kisqali plus ET, compared to ET alone, lowered the risk of cancer recurrence by 25.2% with a consistent, clinically meaningful benefit across Stage II and III patients, regardless of disease stage, menopausal or nodal status. Novartis plans to submit data from NATALEE to regulatory authorities (in Europe, the US, and other countries) in Q3/Q4 2023. Novartis is in US ANDA litigation with a generic manufacturer.
Pluvicto (USD 240 million) continues to see strong demand in the US as the first and only radioligand therapy approved by the FDA for the treatment of adult patients with progressive, PSMA-positive metastatic castration-resistant prostate cancer, who have already been treated with other anticancer treatments (ARPI and taxane-based chemotherapy). In Q2 2023, approval was received for commercial production of Pluvicto for US patients at our radioligand manufacturing facility in Millburn, NJ and the expansion of manufacturing operations for EU commercial supply at our site in Zaragoza, Spain.
Lutathera (USD 150 million, +74%, +75% cc) sales grew mainly in the US and Japan due to increased demand and prior year low base. Growth in the US was also driven by strong field execution. In Japan, growth was driven by increased demand following the transfer of the marketing authorization (MA) back to Novartis from Fujifilm Toyama Chemical.
Piqray/Vijoice (USD 130 million, +53%, +54% cc) sales grew mainly in the US and Europe, benefiting from indication expansion into PIK3CA-related overgrowth spectrum (PROS). In addition to PROS, Piqray is the first and only therapy specifically developed for the approximately 40% of HR+/HER2- advanced breast cancer patients who have a PIK3CA mutation, which is associated with a worse prognosis.
Votrient (USD 106 million, -15%, -13% cc) sales declined due to increased competition, especially from immuno-oncology agents in metastatic renal cell carcinoma.
Tabrecta (USD 41 million, +37%, +37% cc) sales grew mainly in the US. Tabrecta is the first therapy approved by the FDA to specifically target metastatic NSCLC with a mutation that leads to MET exon 14 skipping (METex14) in line agnostic setting.
10
HEMATOLOGY
Q2 2023 | Q2 2022 | % change | % change | H1 2023 | H1 2022 | % change | % change | ||||||||||
USD m | USD m | USD | cc | USD m | USD m | USD | cc | ||||||||||
Hematology | |||||||||||||||||
Promacta/Revolade | 583 | 534 | 9 | 11 | 1 130 | 1 025 | 10 | 13 | |||||||||
Tasigna | 476 | 498 | -4 | -3 | 938 | 959 | -2 | 1 | |||||||||
Jakavi | 435 | 398 | 9 | 11 | 849 | 787 | 8 | 12 | |||||||||
Kymriah | 129 | 136 | -5 | -5 | 264 | 263 | 0 | 3 | |||||||||
Scemblix | 106 | 31 | 242 | 248 | 182 | 56 | 225 | 228 | |||||||||
Adakveo | 53 | 49 | 8 | 8 | 105 | 93 | 13 | 13 | |||||||||
Other | 1 | nm | nm | ||||||||||||||
Total Hematology | 1 782 | 1 646 | 8 | 10 | 3 468 | 3 184 | 9 | 12 | |||||||||
nm = not meaningful |
Promacta/Revolade (USD 583 million, +9%, +11% cc) grew across all regions driven by increased use in second-line persistent and chronic immune thrombocytopenia and as first-line and/or second-line treatment for severe aplastic anemia, according to the respective label in the countries.
Tasigna (USD 476 million, -4%, -3% cc) sales decline was driven by Europe, Emerging Growth Markets and Japan, partly offset by growth in the US.
Jakavi (USD 435 million, +9%, +11% cc) sales grew in Emerging Growth Markets, Europe and Japan, driven by strong demand in both myelofibrosis and polycythemia vera indications. As per the Incyte/Novartis License Agreement, Incyte has rights in the US to exclusively develop and commercialize ruxolitinib for all indications under a different brand name Jakafi®.
Kymriah (USD 129 million, -5%, -5% cc) sales declined in Europe and Emerging Growth Markets, partly offset by growth in Japan and follicular lymphoma indication launch across markets.
Scemblix (USD 106 million, +242%, +248% cc) sales grew across all regions, demonstrating the high unmet need for effective and tolerable treatment options, for CML patients, who have been treated with 2 or more tyrosine kinase inhibitors, or who have the T315I mutation.
Adakveo (USD 53 million, +8%, +8% cc) sales grew mainly in the US and Emerging Growth Markets, treating patients with vaso-occlusive crises caused by sickle cell disease. On May 25, 2023, CHMP recommended the revocation of the conditional marketing authorization for Adakveo, following a review by the CHMP further to the results of the phase III study STAND, which did not demonstrate a statistically significant difference between crizanlizumab 5mg/kg or crizanlizumab 7.5mg/kg and placebo in annualized rates of vaso-occlusive crises leading to a healthcare visit over the first-year post randomization. Final decision by the European Commission is expected by July 31, 2023.
Other promoted brands
Q2 2023 | Q2 2022 | % change | % change | H1 2023 | H1 2022 | % change | % change | ||||||||||
USD m | USD m | USD | cc | USD m | USD m | USD | cc | ||||||||||
Other Promoted Brands | |||||||||||||||||
Ultibro Group | 114 | 126 | -10 | -8 | 228 | 258 | -12 | -8 | |||||||||
Xiidra | 96 | 126 | -24 | -24 | 185 | 233 | -21 | -21 | |||||||||
Beovu | 53 | 54 | -2 | 0 | 104 | 102 | 2 | 5 | |||||||||
Other respiratory | 23 | 20 | 15 | 22 | 48 | 39 | 23 | 31 | |||||||||
Total Other Promoted Brands | 286 | 326 | -12 | -11 | 565 | 632 | -11 | -8 | |||||||||
Total Promoted Brands 1 | 8 229 | 6 874 | 20 | 22 | 15 749 | 13 332 | 18 | 21 | |||||||||
1 Total Promoted Brands refer to the sum of Total Other Promoted Brands and all Therapeutic Areas brands (Hematology, Solid Tumors, Immunology, Neuroscience and Cardiovascular). |
11
Ultibro Group (USD 114 million, -10%, -8% cc) sales declined mainly in Europe and Japan due to various factors including competition, partly offset by growth in China. Ultibro Group consists of Ultibro Breezhaler, Seebri Breezhaler and Onbrez Breezhaler.
Xiidra (USD 96 million, -24%, -24% cc) sales declined due to higher Medicare part D rebates. In the US, Novartis is in ANDA litigation with a generic manufacturer. Novartis has signed an agreement with Bausch + Lomb to divest Xiidra (see Note 9 to the Condensed Interim Consolidated Financial Statements).
Beovu (USD 53 million, -2%, 0% cc) sales grew (cc) in Europe, Japan and Emerging Growth Markets, offset by decline in the US.
Established BRANDS
Q2 2023 | Q2 2022 | % change | % change | H1 2023 | H1 2022 | % change | % change | ||||||||||
USD m | USD m | USD | cc | USD m | USD m | USD | cc | ||||||||||
Established Brands | |||||||||||||||||
Lucentis | 395 | 501 | -21 | -20 | 811 | 1 021 | -21 | -17 | |||||||||
Sandostatin | 331 | 318 | 4 | 5 | 660 | 638 | 3 | 5 | |||||||||
Gilenya | 269 | 555 | -52 | -52 | 501 | 1 160 | -57 | -56 | |||||||||
Exforge Group | 184 | 199 | -8 | -4 | 370 | 399 | -7 | -3 | |||||||||
Galvus Group | 175 | 222 | -21 | -15 | 358 | 438 | -18 | -12 | |||||||||
Diovan Group | 155 | 159 | -3 | 2 | 313 | 350 | -11 | -5 | |||||||||
Gleevec/Glivec | 142 | 194 | -27 | -24 | 289 | 392 | -26 | -23 | |||||||||
Afinitor/Votubia | 116 | 143 | -19 | -17 | 226 | 281 | -20 | -17 | |||||||||
Contract manufacturing 1 | 132 | 83 | 59 | 56 | 255 | 182 | 40 | 41 | |||||||||
Other 2 | 1 115 | 1 277 | -13 | -5 | 2 281 | 2 562 | -11 | -4 | |||||||||
Total Established Brands 1, 2 | 3 014 | 3 651 | -17 | -13 | 6 064 | 7 423 | -18 | -14 | |||||||||
1 2022 restated to reflect the transfer of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities to the Innovative Medicines Division that was effective as of January 1, 2023. | |||||||||||||||||
2 2022 restated to reflect the transfer of the Coartem brand from the Sandoz Division to the Innovative Medicines Division that was effective as of January 1, 2023. |
Lucentis (USD 395 million, -21%, -20% cc) sales declined in Europe, Japan and Emerging Growth Markets mainly due to competition.
Gilenya (USD 269 million, -52%, -52% cc) sales declined due to generic competition across all regions. Novartis is in litigation against a generic manufacturer on the method of treatment patent in the US, and against generic manufacturers on the dosing regimen patent in Europe. On 17 April 2023, the US Supreme Court declined to review an appellate decision invalidating the dosing regimen patent and that decision is now final.
12
Sandoz
Q2 2023 USD m | Q2 2022 restated USD m1 | % change USD | % change cc | H1 2023 USD m | H1 2022 restated USD m1 | % change USD | % change cc | ||||||||||
Net sales to third parties | 2 379 | 2 256 | 5 | 8 | 4 762 | 4 557 | 4 | 8 | |||||||||
Operating income | 212 | 357 | -41 | -27 | 531 | 751 | -29 | -19 | |||||||||
As % of net sales | 8.9 | 15.8 | 11.2 | 16.5 | |||||||||||||
Core operating income | 429 | 451 | -5 | 6 | 933 | 964 | -3 | 5 | |||||||||
As % of net sales | 18.0 | 20.0 | 19.6 | 21.2 | |||||||||||||
1 Restated to reflect the transfers of the Sandoz Division's biotechnology manufacturing services to other companies' activities and the Coartem brand to the Innovative Medicines Division that was effective as of January 1, 2023 (see Note 9 in this Condensed Interim Financial Report). |
Second quarter
Net sales
Sandoz net sales were USD 2.4 billion (+5%, +8% cc), with volume contributing 9 percentage points to growth. Pricing had a negative impact of 1 percentage point. Sales growth was mainly driven by Europe, which benefited from strong volume growth driven by continued momentum from prior year launches, a strong cough and cold season and the biosimilars business.
Sales in Europe were USD 1.3 billion (+11%, +13% cc), in the US USD 378 million (-8%), in Asia / Africa / Australasia USD 395 million (-3%, +4% cc) and in Canada and Latin America USD 277 million (+12%, +16% cc).
Generics sales were USD 1.8 billion (+4%, +6% cc), driven by growth in Europe. Global sales of Biosimilars grew to USD 531 million (+12%, +13% cc), driven by growth ex-US.
Operating income
Operating income was USD 212 million (–41%, –27% cc), with the decline mainly due to higher legal settlements, SG&A investments to drive sales growth and separation and stand-up costs partly offset by higher sales and improved product mix. The full impact of inflation on production costs will only be realized in subsequent periods, after the sell-through of inventory produced at lower cost in the prior year. Operating income margin was 8.9% of net sales, decreasing 6.9 percentage points (-5.1 percentage points in cc).
Core adjustments were USD 217 million, including USD 57 million of amortization. Prior year core adjustments were USD 94 million including USD 56 million of amortization. The change in core adjustments compared to prior year was mainly due to higher legal settlements and separation costs.
Core operating income was USD 429 million (–5%, +6% cc), mainly driven by higher sales and improved product mix partly offset by higher SG&A investments to drive sales growth. Core operating income margin was 18.0% of net sales, decreasing by 2.0 percentage points (-0.3 percentage points cc). Core gross margin as a percentage of sales increased by 1.6 percentage points (cc) mainly due to improved product mix, with the full impact of inflation on production costs to be realized in subsequent periods, after the sell-through of inventory produced at lower cost in the prior year. Core R&D expenses as a percentage of net sales increased by 0.3 percentage points (cc). Core SG&A expenses as a percentage of net sales increased by 1.6 percentage points (cc). Core other income and expense as a percentage of net sales remained in line with prior year.
First half
Net sales
Sandoz net sales were USD 4.8 billion (+4%, +8% cc), with volume contributing 12 percentage points to growth. Pricing had a negative impact of 4 percentage points. Sales growth was mainly driven by Europe, which benefited from strong volume growth driven by continued momentum from prior year launches, a strong cough and cold season and the biosimilars business.
Sales in Europe were USD 2.7 billion (+11%, +14% cc), in the US USD 758 million (-7%), in Asia / Africa / Australasia USD 772 million (-5%, +4% cc) and in Canada and Latin America USD 537 million (+7%, +11% cc).
13
Generics sales were USD 3.7 billion (+3%, +6% cc), driven by growth in Europe. Global sales of Biosimilars grew to USD 1.0 billion (+12%, +15% cc), driven by growth ex-US.
Operating income
Operating income was USD 531 million (–29%, –19% cc), with the decline mainly due to higher legal settlements, higher SG&A investments and separation and stand-up costs partly offset by higher sales and improved product mix. The full impact of inflation on production costs will only be realized in subsequent periods, after the sell-through of inventory produced at lower cost in the prior year. Operating income margin was 11.2% of net sales, decreasing 5.3 percentage points (-4.0 percentage points in cc).
Core adjustments were USD 402 million, including USD 111 million of amortization. Prior year core adjustments were USD 213 million including USD 114 million of amortization. The change in core adjustments compared to prior year was mainly due to higher legal settlements and separation costs.
Core operating income was USD 933 million (–3%, +5% cc), mainly driven by higher sales and improved product mix partly offset by higher SG&A investments to drive higher sales. Core operating income margin was 19.6% of net sales, decreasing by 1.6 percentage points (-0.5 percentage points cc). Core gross margin as a percentage of sales increased by 1.8 percentage points (cc) mainly due to improved product mix, with the full impact of inflation on production costs to be realized in subsequent periods, after the sell-through of inventory produced at lower cost in the prior year. Core R&D expenses as a percentage of net sales increased by 0.1 percentage points (cc). Core SG&A expenses as a percentage of net sales increased by 1.2 percentage points (cc). Core other income and expense as a percentage of net sales decreased the margin by 1.0 percentage points (cc), mainly due to lower divestment income.
14
Group Cash Flow and Balance Sheet
Cash Flow
Second quarter
Net cash flows from operating activities amounted to USD 3.6 billion, compared with USD 3.8 billion in the prior year quarter. This decrease was mainly due to timing of income taxes paid, higher payments out of provisions and unfavorable changes in working capital, partly offset by higher net income adjusted for non-cash items and other adjustments, including divestment gains.
Net cash outflows used in investing activities amounted to USD 1.1 billion, compared with USD 11.6 billion in the prior year quarter.
The current year quarter cash outflows were mainly driven by USD 0.7 billion for the purchases of intangible assets; USD 0.3 billion for purchases of property, plant and equipment; and USD 0.1 billion for acquisitions and divestments of businesses, net.
In the prior year quarter, net cash outflows used in investing activities of USD 11.6 billion were driven by USD 11.1 billion for net purchases of marketable securities, commodities and time deposits; and USD 0.6 billion for purchases of intangible assets, property, plant and equipment and of financial assets. Acquisitions and divestments of businesses, net amounted to USD 0.1 billion. These cash outflows were partly offset by cash inflows of USD 0.2 billion from the sale of intangible assets, financial assets and property, plant and equipment.
Net cash outflows used in financing activities amounted to USD 3.6 billion, compared with USD 2.3 billion in the prior year quarter.
The current year quarter cash outflows were mainly driven by USD 3.0 billion for net treasury share transactions and USD 0.7 billion from the net decrease in current financial debts.
In the prior year quarter, net cash outflows used in financing activities of USD 2.3 billion were mainly driven by USD 2.7 billion for net treasury share transactions; USD 1.0 billion for the repayment of a US dollar bond; and USD 0.1 billion payments for lease liabilities. These cash outflows were partly offset by cash inflows of USD 1.5 billion from the net increase in current financial debts.
Free cash flow amounted to USD 3.3 billion (-6% USD), compared with USD 3.5 billion in the prior year quarter. This decrease was driven by the lower net cash flows from operating activities.
First half
Net cash flows from operating activities amounted to USD 6.5 billion, compared with USD 5.4 billion in the prior year period. This increase was mainly driven by higher net income adjusted for non-cash items and other adjustments, including divestment gains, favorable changes in working capital, higher interest received, partly offset by higher payments out of provisions.
Net cash inflows from investing activities amounted to USD 9.6 billion, compared with USD 2.3 billion net cash outflows in the prior year period.
The current year period cash inflows were driven by net proceeds of USD 10.9 billion from the sale of marketable securities, commodities and time deposits; USD 0.3 billion from the sale of intangible assets, financial assets and property, plant and equipment. These cash inflows were partly offset by cash outflows of USD 0.9 billion for purchases of intangible assets; USD 0.5 billion for purchases of property, plant and equipment; and USD 0.1 billion for purchases of financial assets. Acquisitions and divestments of businesses resulted in a net cash outflow of USD 0.1 billion.
In the prior year period, net cash outflows used in investing activities of USD 2.3 billion were driven by USD 0.9 billion for purchases of intangible assets; USD 0.9 billion for acquisitions and divestments of businesses, net (primarily the acquisition of Gyroscope Therapeutics Holdings plc for USD 0.8 billion); and USD 0.6 billion for purchases of property, plant and equipment and of financial assets. Cash outflows for net purchases of marketable securities, commodities and time deposits amounted to USD 0.2 billion. These cash outflows were partly offset by USD 0.3 billion cash inflows from the sale of intangible assets, financial assets and property, plant and equipment.
15
Net cash outflows used in financing activities amounted to USD 12.8 billion, compared with USD 11.8 billion in the prior year period.
The current year period cash outflows were mainly driven by USD 7.3 billion for the dividend payment and USD 5.7 billion for net treasury share transactions. These cash outflows were partly offset by cash inflows of USD 0.3 billion from the net increase in current financial debts.
In the prior year period, net cash outflows used in financing activities of USD 11.8 billion were driven by USD 7.5 billion for the dividend payment; USD 5.2 billion for net treasury share transactions; USD 1.0 billion for the repayment of a US dollar bond; and USD 0.2 billion payments for lease liabilities. These cash outflows were partly offset by cash inflows of USD 2.0 billion from the net increase in current financial debts and other net financing cash inflows of USD 0.1 billion.
Free cash flow amounted to USD 6.0 billion (+23% USD), compared with USD 4.9 billion in the prior year period driven by higher net cash flows from operating activities.
Balance sheet
Assets
Total non-current assets of USD 77.5 billion decreased by USD 3.1 billion compared to December 31, 2022.
Intangible assets other than goodwill decreased by USD 3.6 billion mainly due to amortization and impairments and the reclassification to assets held for sale of current marketed product Xiidra related to the planned divestment of the ‘front of eye’ ophthalmology assets (see Note 9) , partially offset by additions and favorable currency translation adjustments.
Goodwill increased by USD 0.2 billion due to favorable currency translation adjustments.
Deferred tax assets increased by USD 0.3 billion and property, plant and equipment, right-of-use assets, investments in associated companies, financial assets, and other non-current assets were broadly in line with December 31, 2022.
Total current assets of USD 33.5 billion decreased by USD 3.4 billion compared to December 31, 2022.
Cash and cash equivalents, marketable securities, commodities, time deposits and derivative financial instruments decreased by USD 7.8 billion mainly due to the dividend payment, and purchases of treasury shares and intangible assets, partially offset by the cash generated through operating activities.
Assets held for sale increased by USD 1.7 billion due to the reclassification of current marketed product Xiidra related to the planned divestment of the ‘front of eye’ ophthalmology assets.
Inventories increased by USD 1.1 billion and trade receivables increased by USD 1.1 billion. Other current assets increased by USD 0.4 billion and income tax receivables were broadly in line with December 31, 2022.
Liabilities
Total non-current liabilities of USD 27.1 billion decreased by USD 2.2 billion compared to December 31, 2022.
Non-current financial debts decreased by USD 2.0 billion mainly due to the reclassification of USD 2.1 billion from non-current to current financial debts of a USD denominated bond with notional amount of USD 2.2 billion maturing in 2024.
Non-current lease liabilities, deferred tax liabilities and provisions and other non-current liabilities were broadly in line with December 31, 2022.
Total current liabilities of USD 31.9 billion increased by USD 3.2 billion compared to December 31, 2022.
Current financial debts and derivative financial instruments increased by USD 2.4 billion, mainly due to the reclassification of USD 2.1 billion from non-current to current financial debts of a USD denominated bond with notional amount of USD 2.2 billion maturing in 2024.
16
Provisions and other current liabilities increased by USD 0.5 billion. Trade payables, current income tax liabilities and current lease liabilities were broadly in line with December 31, 2022.
Equity
The Group`s equity decreased by USD 7.5 billion to USD 51.9 billion compared to December 31, 2022. This decrease was mainly due to the cash-dividend payment of USD 7.3 billion and the purchase of treasury shares of USD 5.9 billion. This was partially offset by the net income of USD 4.6 billion, favorable currency translation differences of USD 0.5 billion, exercise of options and employee transactions of USD 0.2 billion, and equity-based compensation of USD 0.4 billion.
Net debt and debt/equity ratio
The Group’s liquidity amounted to USD 11.2 billion at June 30, 2023, compared to USD 18.9 billion on December 31, 2022. Total non-current and current financial debts, including derivatives, amounted to USD 26.5 billion at June 30, 2023 compared to USD 26.2 billion at December 31, 2022.
The debt/equity ratio were 0.51:1 at June 30, 2023, compared to 0.44:1 at December 31, 2022. As of June 30, 2023 the net debt was USD 15.4 billion, compared to USD 7.2 billion on December 31, 2022.
17
Innovation Review
Novartis continues to focus its R&D portfolio prioritizing high value medicines with transformative potential for patients. We now focus on ~130 projects in clinical development.
Selected Innovative Medicines approvals
Product | Active ingredient/ Descriptor | Indication | Region | |||||
Cosentyx | secukinumab | 300mg auto-injector and pre-filled syringe | US | |||||
Cosentyx | secukinumab | Hidradenitis suppurativa | EU | |||||
Entresto | sacubitril + valsartan | Heart failure, pediatrics | EU | |||||
Selected Innovative Medicines projects awaiting regulatory decisions
Completed submissions | |||||||||||
Product | Indication | US | EU | Japan | News update | ||||||
LNP023 (iptacopan) | Paroxysmal nocturnal hemoglobinuria | Q2 2023 | Q2 2023 | – US and EU filings | |||||||
Cosentyx | Intravenous formulation for psoriatic arthritis (PsA), ankylosing spondylitis (AS), and non-radiographic axial SpA (nr-axSpA) | Q4 2022 | |||||||||
Cosentyx | Hidradenitis suppurativa | Q3 2022 | Approved | – EU approval | |||||||
Jakavi | Acute graft-versus-host disease (GvHD) | Approved | Q1 2021 | ||||||||
Chronic GvHD | Approved | Q1 2021 | |||||||||
VDT482 (tislelizumab) | 2L Esophageal cancer (ESCC) | Q3 2021 | Q1 2022 | ||||||||
NSCLC | Q1 2022 | ||||||||||
Selected Innovative Medicines pipeline projects
Compound/ product | Potential indication/ Disease area | First planned submissions | Current Phase | News update | |||||
Aimovig | Migraine, pediatrics | ≥2026 | 3 | ||||||
AVXS-101 (OAV101) | Spinal muscular atrophy (IT formulation) | 2025 | 3 | ||||||
Beovu | Diabetic retinopathy | 2025 | 3 | ||||||
CFZ533 (iscalimab) | Sjögren's syndrome | ≥2026 | 2 | ||||||
Coartem | Malaria, uncomplicated (<5 kg patients) | 2024 | 3 | – Submission will use the MAGHP procedure in Switzerland to facilitate rapid approval in developing countries | |||||
Cosentyx | Giant cell arteritis | 2025 | 3 | ||||||
Polymyalgia rheumatica | ≥2026 | 3 | |||||||
Rotator cuff tendinopathy | ≥2026 | 3 | |||||||
Lupus nephritis | 3 | – Project discontinuation due to futility | |||||||
JDQ443 | Non-small cell lung cancer, 2/3L | 2024 | 3 | ||||||
Non-small cell lung cancer (combos) | ≥2026 | 2 | |||||||
KAE609 (cipargamin) | Malaria, uncomplicated | ≥2026 | 2 | ||||||
Malaria, severe | ≥2026 | 2 | |||||||
KLU156 (ganaplacide + lumefantrine) | Malaria, uncomplicated | ≥2026 | 2 | – FDA Orphan Drug designation – FDA Fast Track designation for the ganaplacide-containing combination therapy | |||||
18
Compound/ product | Potential indication/ Disease area | First planned submissions | Current Phase | News update | |||||
Kisqali + endocrine therapy | Hormone receptor-positive (HR+)/human epidermal growth factor receptor 2-negative (HER2-) early breast cancer (adjuvant) | 2023 | 3 | – NATALEE data presentation at ASCO | |||||
Leqvio | Secondary prevention of cardiovascular events in patients with elevated levels of LDL-C | ≥2026 | 3 | ||||||
Primary prevention CVRR | ≥2026 | 3 | |||||||
LNA043 | Osteoarthritis | ≥2026 | 2 | – FDA Fast Track designation | |||||
LNP023 (iptacopan) | IgA nephropathy | 2024 | 3 | – EU Orphan Drug designation | |||||
C3 glomerulopathy | 2024 | 3 | – EU Orphan Drug designation – EU PRIME designation – FDA Rare Pediatric designation – China Breakthrough Therapy designation – FDA Breakthrough Therapy designation granted | ||||||
IC-MPGN | ≥2026 | 3 | – Ph3 APPARENT | ||||||
Atypical haemolytic uraemic syndrome | ≥2026 | 3 | |||||||
LOU064 (remibrutinib) | Chronic spontaneous urticaria | 2024 | 3 | ||||||
Multiple sclerosis | ≥2026 | 3 | |||||||
Sjögren's syndrome | ≥2026 | 2 | |||||||
Lutathera | Gastroenteropancreatic neuroendocrine tumors, 1L in G2/3 tumors | 2024 | 3 | – Timelines revised based on event rates | |||||
177Lu-NeoB | Multiple solid tumors | ≥2026 | 1 | ||||||
LXE408 | Visceral leishmaniasis | ≥2026 | 2 | ||||||
MBG453 (sabatolimab) | Myelodysplastic syndrome | 2024 | 3 | – FDA Fast Track designation – EU Orphan Drug designation | |||||
Unfit acute myeloid leukemia | ≥2026 | 2 | |||||||
MIJ821 (onfasprodil) | Depression | ≥2026 | 2 | ||||||
NIS793 | 1L Pancreatic cancer | 3 | – Program discontinuation based on benefit-risk assessment | ||||||
Piqray | Ovarian cancer | 2023 | 3 | ||||||
Pluvicto | Metastatic castration-resistant prostate cancer pre-taxane | 2023 | 3 | ||||||
Metastatic hormone sensitive prostate cancer | 2024 | 3 | |||||||
PPY988 (GT005) | Geographic atrophy | ≥2026 | 2 | – Gyroscope acquisition | |||||
QGE031 (ligelizumab) | Food allergy | ≥2026 | 3 | ||||||
SAF312 (libvatrep) | Chronic ocular surface pain | ≥2026 | 2 | – ‘Front of eye’ ophthalmology divestment subject to customary closing conditions | |||||
Scemblix | 1L Chronic myeloid leukemia | 2024 | 3 | ||||||
TQJ230 (pelacarsen) | Secondary prevention of cardiovascular events in patients with elevated levels of lipoprotein(a) | 2025 | 3 | – FDA Fast Track designation – China Breakthrough Therapy designation | |||||
19
Compound/ product | Potential indication/ Disease area | First planned submissions | Current Phase | News update | |||||
VAY736 (ianalumab) | Auto-immune hepatitis | ≥2026 | 2 | ||||||
Sjögren’s syndrome | ≥2026 | 3 | – FDA Fast Track designation | ||||||
Lupus nephritis | ≥2026 | 3 | |||||||
Systemic lupus erythematosus | ≥2026 | 3 | |||||||
1L Immune thrombocytopenia | ≥2026 | 3 | |||||||
2L Immune thrombocytopenia | ≥2026 | 3 | |||||||
warm Autoimmune hemolytic anemia | ≥2026 | 3 | |||||||
VDT482 (tislelizumab) | 1L Nasopharyngeal carcinoma | 3 | – Filing will not be pursued to prioritize other key programs in portfolio | ||||||
1L Gastric cancer | 2023 | 3 | |||||||
1L ESCC | 2023 | 3 | |||||||
Localized ESCC | 2024 | 3 | |||||||
1L Hepatocellular carcinoma | 3 | – Filing will not be pursued to prioritize other key programs in portfolio | |||||||
1L Small cell lung cancer | 2024 | 3 | |||||||
1L Urothelial cell carcinoma | ≥2026 | 3 | |||||||
Adj/Neo adj. NSCLC | ≥2026 | 3 | |||||||
Xolair | Food allergy | 2023 | 3 | ||||||
YTB323 | Lupus nephritis | ≥2026 | 2 | ||||||
1L High-risk large B-cell lymphoma | ≥2026 | 2 | |||||||
XXB750 | Hypertension | ≥2026 | 2 | ||||||
Business development updates | – Agreement to acquire Chinook Therapeutics, a clinical-stage biopharmaceutical company with two high-value, late-stage assets in development for IgA nephropathy | ||||||||
– Agreement to acquire AVROBIO cystinosis gene therapy program | |||||||||
– Acquired DTx Pharma, deal includes DTx-1252 (for Charcot-Marie-Tooth disease type 1A), two additional preclinical programs and DTx's FALCON platform | |||||||||
Selected Sandoz approvals and pipeline projects
Project/ Compound | Potential indication/ Disease area | News update | |||
GP2411 (denosumab) | Osteoporosis (same as originator) | – FDA and EMA file acceptance | |||
SOK583 (aflibercept) | Ophthalmology (same as originator) | – In Ph3 | |||
Insulin glargine, lispro, aspart | Diabetes | – Collaboration with Gan & Lee – Insulin glargine in registration | |||
Natalizumab | Multiple sclerosis and Crohn’s disease | – Collaboration Polpharma Biologics – In registration | |||
Trastuzumab | HER2-positive cancer tumors | – Collaboration EirGenix – In registration | |||
Bevacizumab | Solid tumors | – Collaboration Bio-Thera Solutions – In registration | |||
20
Condensed Interim Consolidated Financial Statements
Consolidated income statements
Second quarter (unaudited)
(USD millions unless indicated otherwise) | Note | Q2 2023 | Q2 2022 | ||||
Net sales to third parties | 9 | 13 622 | 12 781 | ||||
Other revenues | 9 | 314 | 304 | ||||
Cost of goods sold | -4 341 | -3 751 | |||||
Gross profit | 9 595 | 9 334 | |||||
Selling, general and administration | -3 686 | -3 581 | |||||
Research and development | -2 526 | -2 498 | |||||
Other income | 147 | 303 | |||||
Other expense | -610 | -1 330 | |||||
Operating income | 2 920 | 2 228 | |||||
Loss from associated companies | -2 | ||||||
Interest expense | -224 | -202 | |||||
Other financial income and expense | 75 | 16 | |||||
Income before taxes | 2 769 | 2 042 | |||||
Income taxes | -452 | -347 | |||||
Net income | 2 317 | 1 695 | |||||
Attributable to: | |||||||
Shareholders of Novartis AG | 2 316 | 1 694 | |||||
Non-controlling interests | 1 | 1 | |||||
Weighted average number of shares outstanding – Basic (million) | 2 083 | 2 198 | |||||
Basic earnings per share (USD) 1 | 1.11 | 0.77 | |||||
Weighted average number of shares outstanding – Diluted (million) | 2 095 | 2 211 | |||||
Diluted earnings per share (USD) 1 | 1.11 | 0.77 | |||||
1 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG. |
21
Consolidated income statements
First half (unaudited)
(USD millions unless indicated otherwise) | Note | H1 2023 | H1 2022 | ||||
Net sales to third parties | 9 | 26 575 | 25 312 | ||||
Other revenues | 9 | 569 | 587 | ||||
Cost of goods sold | -8 272 | -7 607 | |||||
Gross profit | 18 872 | 18 292 | |||||
Selling, general and administration | -7 129 | -7 093 | |||||
Research and development | -5 320 | -4 818 | |||||
Other income | 1 117 | 529 | |||||
Other expense | -1 764 | -1 830 | |||||
Operating income | 5 776 | 5 080 | |||||
Loss from associated companies | -3 | -2 | |||||
Interest expense | -435 | -403 | |||||
Other financial income and expense | 171 | 36 | |||||
Income before taxes | 5 509 | 4 711 | |||||
Income taxes | -898 | -797 | |||||
Net income | 4 611 | 3 914 | |||||
Attributable to: | |||||||
Shareholders of Novartis AG | 4 609 | 3 916 | |||||
Non-controlling interests | 2 | -2 | |||||
Weighted average number of shares outstanding – Basic (million) | 2 097 | 2 211 | |||||
Basic earnings per share (USD) 1 | 2.20 | 1.77 | |||||
Weighted average number of shares outstanding – Diluted (million) | 2 109 | 2 224 | |||||
Diluted earnings per share (USD) 1 | 2.19 | 1.76 | |||||
1 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG. |
22
Consolidated statements of comprehensive income
Second quarter (unaudited)
(USD millions) | Q2 2023 | Q2 2022 | |||
Net income | 2 317 | 1 695 | |||
Other comprehensive income | |||||
Items that are or may be recycled into the consolidated income statement | |||||
Net investment hedge, net of taxes | 6 | 95 | |||
Currency translation effects, net of taxes | 216 | -1 014 | |||
Total of items that are or may be recycled | 222 | -919 | |||
Items that will never be recycled into the consolidated income statement | |||||
Actuarial (losses)/gains from defined benefit plans, net of taxes | -1 | 475 | |||
Fair value adjustments on equity securities, net of taxes | -2 | -145 | |||
Total of items that will never be recycled | -3 | 330 | |||
Total comprehensive income | 2 536 | 1 106 | |||
Attributable to: | |||||
Shareholders of Novartis AG | 2 535 | 1 109 | |||
Non-controlling interests | 1 | -3 | |||
First half (unaudited)
(USD millions) | H1 2023 | H1 2022 | |||
Net income | 4 611 | 3 914 | |||
Other comprehensive income | |||||
Items that are or may be recycled into the consolidated income statement | |||||
Net investment hedge, net of taxes | -29 | 120 | |||
Currency translation effects, net of taxes | 522 | -1 284 | |||
Total of items that are or may be recycled | 493 | -1 164 | |||
Items that will never be recycled into the consolidated income statement | |||||
Actuarial (losses)/gains from defined benefit plans, net of taxes | -59 | 2 342 | |||
Fair value adjustments on equity securities, net of taxes | -46 | -325 | |||
Total of items that will never be recycled | -105 | 2 017 | |||
Total comprehensive income | 4 999 | 4 767 | |||
Attributable to: | |||||
Shareholders of Novartis AG | 4 996 | 4 773 | |||
Non-controlling interests | 3 | -6 | |||
23
Consolidated balance sheets
(USD millions) | Note | Jun 30, 2023 (unaudited) | Dec 31, 2022 (audited) | ||||
Assets | |||||||
Non-current assets | |||||||
Property, plant and equipment | 9 | 10 825 | 10 764 | ||||
Right-of-use assets | 1 452 | 1 431 | |||||
Goodwill | 9 | 29 522 | 29 301 | ||||
Intangible assets other than goodwill | 9 | 28 003 | 31 644 | ||||
Investments in associated companies | 127 | 143 | |||||
Deferred tax assets | 4 043 | 3 739 | |||||
Financial assets | 2 306 | 2 411 | |||||
Other non-current assets | 1 208 | 1 110 | |||||
Total non-current assets | 77 486 | 80 543 | |||||
Current assets | |||||||
Inventories | 8 228 | 7 175 | |||||
Trade receivables | 9 195 | 8 066 | |||||
Income tax receivables | 348 | 268 | |||||
Marketable securities, commodities, time deposits and derivative financial instruments | 289 | 11 413 | |||||
Cash and cash equivalents | 10 885 | 7 517 | |||||
Other current assets | 2 828 | 2 471 | |||||
Total current assets without disposal group | 31 773 | 36 910 | |||||
Asset held for sale | 9 | 1 720 | |||||
Total current assets | 33 493 | 36 910 | |||||
Total assets | 110 979 | 117 453 | |||||
Equity and liabilities | |||||||
Equity | |||||||
Share capital | 842 | 890 | |||||
Treasury shares | -52 | -92 | |||||
Reserves | 51 057 | 58 544 | |||||
Equity attributable to Novartis AG shareholders | 51 847 | 59 342 | |||||
Non-controlling interests | 84 | 81 | |||||
Total equity | 51 931 | 59 423 | |||||
Liabilities | |||||||
Non-current liabilities | |||||||
Financial debts | 18 259 | 20 244 | |||||
Lease liabilities | 1 545 | 1 538 | |||||
Deferred tax liabilities | 2 526 | 2 686 | |||||
Provisions and other non-current liabilities | 4 809 | 4 906 | |||||
Total non-current liabilities | 27 139 | 29 374 | |||||
Current liabilities | |||||||
Trade payables | 5 350 | 5 146 | |||||
Financial debts and derivative financial instruments | 8 289 | 5 931 | |||||
Lease liabilities | 247 | 251 | |||||
Current income tax liabilities | 2 651 | 2 533 | |||||
Provisions and other current liabilities | 15 338 | 14 795 | |||||
Total current liabilities without disposal group | 31 875 | 28 656 | |||||
Liabilities held for sale | 9 | 34 | |||||
Total current liabilities | 31 909 | 28 656 | |||||
Total liabilities | 59 048 | 58 030 | |||||
Total equity and liabilities | 110 979 | 117 453 | |||||
24
Consolidated statements of changes in equity
Second quarter (unaudited)
Reserves | |||||||||||||||||
(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 April 1, 2023 | 842 | -36 | 56 089 | -4 836 | 52 059 | 83 | 52 142 | ||||||||||
Net income | 2 316 | 2 316 | 1 | 2 317 | |||||||||||||
Other comprehensive income | 219 | 219 | 0 | 219 | |||||||||||||
Total comprehensive income | 2 316 | 219 | 2 535 | 1 | 2 536 | ||||||||||||
Purchase of treasury shares | -17 | -2 994 | -3 011 | -3 011 | |||||||||||||
Equity-based compensation | 1 | 241 | 242 | 242 | |||||||||||||
Fair value adjustments on financial assets sold | 8 | -8 | |||||||||||||||
Other movements | 4.3 | 22 | 22 | 22 | |||||||||||||
Total of other equity movements | -16 | -2 723 | -8 | -2 747 | -2 747 | ||||||||||||
Total equity at June 30, 2023 | 842 | -52 | 55 682 | -4 625 | 51 847 | 84 | 51 931 | ||||||||||
Reserves | |||||||||||||||||
(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 April 1, 2022 | 901 | -60 | 63 451 | -2 752 | 61 540 | 164 | 61 704 | ||||||||||
Net income | 1 694 | 1 694 | 1 | 1 695 | |||||||||||||
Other comprehensive income | -585 | -585 | -4 | -589 | |||||||||||||
Total comprehensive income | 1 694 | -585 | 1 109 | -3 | 1 106 | ||||||||||||
Purchase of treasury shares | -16 | -2 667 | -2 683 | -2 683 | |||||||||||||
Reduction of share capital | -11 | 15 | -4 | ||||||||||||||
Exercise of options and employee transactions | 4.1 | -2 | -2 | -2 | |||||||||||||
Equity-based compensation | 1 | 203 | 204 | 204 | |||||||||||||
Taxes on treasury share transactions | 1 | 1 | 1 | ||||||||||||||
Decrease of treasury share repurchase obligation under a share buyback trading plan | 4.2 | 2 639 | 2 639 | 2 639 | |||||||||||||
Changes in non-controlling interests | -80 | -80 | |||||||||||||||
Other movements | 4.3 | 117 | 117 | 117 | |||||||||||||
Total of other equity movements | -11 | 287 | 276 | -80 | 196 | ||||||||||||
Total equity at June 30, 2022 | 890 | -60 | 65 432 | -3 337 | 62 925 | 81 | 63 006 | ||||||||||
25
Consolidated statements of changes in equity
First half (unaudited)
Reserves | |||||||||||||||||
(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, 2023 | 890 | -92 | 63 540 | -4 996 | 59 342 | 81 | 59 423 | ||||||||||
Net income | 4 609 | 4 609 | 2 | 4 611 | |||||||||||||
Other comprehensive income | 387 | 387 | 1 | 388 | |||||||||||||
Total comprehensive income | 4 609 | 387 | 4 996 | 3 | 4 999 | ||||||||||||
Dividends | -7 255 | -7 255 | -7 255 | ||||||||||||||
Purchase of treasury shares | -35 | -5 853 | -5 888 | -5 888 | |||||||||||||
Reduction of share capital | -48 | 68 | -20 | ||||||||||||||
Exercise of options and employee transactions | 4.1 | 2 | 151 | 153 | 153 | ||||||||||||
Equity-based compensation | 5 | 428 | 433 | 433 | |||||||||||||
Taxes on treasury share transactions | 8 | 8 | 8 | ||||||||||||||
Value adjustments on financial assets sold | 16 | -16 | |||||||||||||||
Other movements | 4.3 | 58 | 58 | 58 | |||||||||||||
Total of other equity movements | -48 | 40 | -12 467 | -16 | -12 491 | -12 491 | |||||||||||
Total equity at June 30, 2023 | 842 | -52 | 55 682 | -4 625 | 51 847 | 84 | 51 931 | ||||||||||
Reserves | |||||||||||||||||
(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, 2022 | 901 | -48 | 70 989 | -4 187 | 67 655 | 167 | 67 822 | ||||||||||
Net income | 3 916 | 3 916 | -2 | 3 914 | |||||||||||||
Other comprehensive income | 857 | 857 | -4 | 853 | |||||||||||||
Total comprehensive income | 3 916 | 857 | 4 773 | -6 | 4 767 | ||||||||||||
Dividends | -7 506 | -7 506 | -7 506 | ||||||||||||||
Purchase of treasury shares | -33 | -5 457 | -5 490 | -5 490 | |||||||||||||
Reduction of share capital | -11 | 15 | -4 | ||||||||||||||
Exercise of options and employee transactions | 4.1 | 1 | 90 | 91 | 91 | ||||||||||||
Equity-based compensation | 5 | 432 | 437 | 437 | |||||||||||||
Shares delivered to Alcon employees as a result of the Alcon spin-off | 0 | 5 | 5 | 5 | |||||||||||||
Taxes on treasury share transactions | 11 | 11 | 11 | ||||||||||||||
Decrease of treasury share repurchase obligation under a share buyback trading plan | 4.2 | 2 809 | 2 809 | 2 809 | |||||||||||||
Changes in non-controlling interests | -80 | -80 | |||||||||||||||
Fair value adjustments on financial assets sold | 7 | -7 | |||||||||||||||
Other movements | 4.3 | 140 | 140 | 140 | |||||||||||||
Total of other equity movements | -11 | -12 | -9 473 | -7 | -9 503 | -80 | -9 583 | ||||||||||
Total equity at June 30, 2022 | 890 | -60 | 65 432 | -3 337 | 62 925 | 81 | 63 006 | ||||||||||
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Consolidated statements of cash flows
Second quarter (unaudited)
(USD millions) | Note | Q2 2023 | Q2 2022 | ||||
Net income | 2 317 | 1 695 | |||||
Adjustments to reconcile net income to net cash flows from operating activities | |||||||
Reversal of non-cash items and other adjustments | 6.1 | 2 883 | 3 061 | ||||
Dividends received from associated companies and others | 1 | ||||||
Interest received | 118 | 21 | |||||
Interest paid | -230 | -198 | |||||
Change in other financial receipts | -53 | ||||||
Change in other financial payments | -5 | -13 | |||||
Income taxes paid | -1 030 | -606 | |||||
Net cash flows from operating activities before working capital and provision changes | 4 000 | 3 961 | |||||
Payments out of provisions and other net cash movements in non-current liabilities | -262 | -152 | |||||
Change in net current assets and other operating cash flow items | 6.2 | -162 | -54 | ||||
Net cash flows from operating activities | 3 576 | 3 755 | |||||
Purchases of property, plant and equipment | -301 | -257 | |||||
Proceeds from sale of property, plant and equipment | 7 | 13 | |||||
Purchases of intangible assets | -695 | -326 | |||||
Proceeds from sale of intangible assets | 3 | 127 | |||||
Purchases of financial assets | -27 | -38 | |||||
Proceeds from sale of financial assets | 47 | 30 | |||||
Acquisitions and divestments of interests in associated companies, net | -2 | -2 | |||||
Acquisitions and divestments of businesses, net | 6.3 | -84 | -59 | ||||
Purchases of marketable securities, commodities and time deposits | -4 | -13 233 | |||||
Proceeds from sale of marketable securities, commodities and time deposits | 3 | 2 117 | |||||
Net cash used in investing activities | -1 053 | -11 628 | |||||
Purchases of treasury shares | -2 957 | -2 714 | |||||
Proceeds from exercised options and other treasury share transactions, net | 6 | ||||||
Increase in non-current financial debts | 4 | 3 | |||||
Repayments of the current portion of non-current financial debts | -1 075 | ||||||
Change in current financial debts | -713 | 1 477 | |||||
Payments of lease liabilities | -73 | -74 | |||||
Other financing cash flows, net | 102 | 75 | |||||
Net cash flows used in financing activities | -3 637 | -2 302 | |||||
Net change in cash and cash equivalents before effect of exchange rate changes | -1 114 | -10 175 | |||||
Effect of exchange rate changes on cash and cash equivalents | -1 | -52 | |||||
Net change in cash and cash equivalents | -1 115 | -10 227 | |||||
Cash and cash equivalents at April 1 | 12 000 | 13 852 | |||||
Cash and cash equivalents at June 30 | 10 885 | 3 625 | |||||
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Consolidated statements of cash flows
First half (unaudited)
(USD millions) | Note | H1 2023 | H1 2022 | ||||
Net income | 4 611 | 3 914 | |||||
Adjustments to reconcile net income to net cash flows from operating activities | |||||||
Reversal of non-cash items and other adjustments | 6.1 | 5 890 | 5 414 | ||||
Dividends received from associated companies and others | 5 | 1 | |||||
Interest received | 374 | 38 | |||||
Interest paid | -353 | -308 | |||||
Other financial receipts | 27 | ||||||
Other financial payments | -11 | -43 | |||||
Income taxes paid | -1 378 | -1 239 | |||||
Net cash flows from operating activities before working capital and provision changes | 9 165 | 7 777 | |||||
Payments out of provisions and other net cash movements in non-current liabilities | -966 | -308 | |||||
Change in net current assets and other operating cash flow items | 6.2 | -1 666 | -2 065 | ||||
Net cash flows from operating activities | 6 533 | 5 404 | |||||
Purchases of property, plant and equipment | -538 | -514 | |||||
Proceeds from sale of property, plant and equipment | 39 | 46 | |||||
Purchases of intangible assets | -928 | -928 | |||||
Proceeds from sale of intangible assets | 133 | 193 | |||||
Purchases of financial assets | -69 | -73 | |||||
Proceeds from sale of financial assets | 111 | 96 | |||||
Acquisitions and divestments of interests in associated companies, net | -5 | -20 | |||||
Acquisitions and divestments of businesses, net | 6.3 | -123 | -880 | ||||
Purchases of marketable securities, commodities and time deposits | -69 | -17 454 | |||||
Proceeds from sale of marketable securities, commodities and time deposits | 11 017 | 17 271 | |||||
Net cash flows from/(used in) investing activities | 9 568 | -2 263 | |||||
Dividends paid to shareholders of Novartis AG | -7 255 | -7 506 | |||||
Purchases of treasury shares | -5 843 | -5 256 | |||||
Proceeds from exercised options and other treasury share transactions, net | 159 | 100 | |||||
Increase in non-current financial debts | 6 | 6 | |||||
Repayments of the current portion of non-current financial debts | -1 075 | ||||||
Change in current financial debts | 309 | 1 955 | |||||
Payments of lease liabilities | -148 | -151 | |||||
Other financing cash flows, net | -67 | 97 | |||||
Net cash flows used in financing activities | -12 839 | -11 830 | |||||
Net change in cash and cash equivalents before effect of exchange rate changes | 3 262 | -8 689 | |||||
Effect of exchange rate changes on cash and cash equivalents | 106 | -93 | |||||
Net change in cash and cash equivalents | 3 368 | -8 782 | |||||
Cash and cash equivalents at January 1 | 7 517 | 12 407 | |||||
Cash and cash equivalents at June 30 | 10 885 | 3 625 | |||||
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Notes to the Condensed Interim Consolidated Financial Statements for the three-month and six-month period ended June 30, 2023 (unaudited)
1. Basis of preparation
These Condensed Interim Consolidated Financial Statements for the three-month and six-month interim period ended June 30, 2023, were prepared in accordance with International Accounting Standard 34 Interim Financial Reporting and accounting policies set out in the 2022 Annual Report published on February 1, 2023.
2. Selected critical accounting policies
The Group’s principal accounting policies are set out in Note 1 to the Consolidated Financial Statements in the 2022 Annual Report and conform with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
The preparation of interim financial statements requires management to make certain estimates and assumptions, either at the balance sheet date or during the period, which affect the reported amounts of revenues, expenses, assets, liabilities and contingent amounts.
Estimates are based on historical experience and other assumptions that are considered reasonable under the given circumstances and are regularly monitored. Actual outcomes and results could differ from those estimates and assumptions. Revisions to estimates are recognized in the period in which the estimate is revised.
As disclosed in the 2022 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.
The Group’s activities are not subject to significant seasonal fluctuations.
3. Significant transactions
The Group applied the acquisition method of accounting for businesses acquired, and did not elect to apply the optional concentration test to account for acquired business as an asset separately acquired.
Significant pending transactions entered into in second quarter 2023 and closed in July 2023
Innovative Medicines – acquisition of DTx Pharma Inc.
In the second quarter of 2023, Novartis entered into an agreement to acquire DTx Pharma Inc. (DTx), a San-Diego US based, pre-clinical stage biotechnology company focused on leveraging its proprietary FALCON platform to develop siRNA therapies for neuroscience indications. DTx’s lead program, DTx-1252 targets the root cause of CMT1A—the overexpression of PMP22, a protein that causes the myelin sheath that supports and insulates nerves in the peripheral nervous system to function abnormally. The transaction also includes two additional pre-clinical programs for other neuroscience indications. The transaction closed on July 14, 2023.
The purchase price consists of a cash payment of USD 0.5 billion and potential additional milestones up to USD 0.5 billion, which the DTx Pharma Inc. shareholders are eligible to receive upon achievement of specified milestone.
29
Significant pending transaction in 2023
Innovative Medicines – acquisition of Chinook Therapeutics
On June 12, 2023, Novartis entered into an agreement to acquire Chinook Therapeutics, a Seattle, WA, based clinical stage biopharmaceutical company with two late-stage medicines in development for rare, severe chronic kidney diseases. The purchase price will consist of a cash payment of USD 3.2 billion and potential additional payments of up to USD 0.3 billion, which Chinook Therapeutics shareholders are eligible to receive upon achievement of specified milestones.
The transaction is expected to be completed in the second half of 2023, subject to customary closing conditions, including approval of Chinook Therapeutics shareholders and receipt of regulatory approvals.
Significant transactions in 2022
Innovative Medicines – acquisition of Gyroscope Therapeutics Holdings plc
On December 22, 2021, Novartis entered into an agreement to acquire all outstanding shares of Gyroscope Therapeutics Holdings plc (Gyroscope), a UK-based ocular gene therapy company. Gyroscope focuses on the discovery and development of gene therapy treatments for retinal indications. The purchase price consisted of a cash payment of USD 0.8 billion, subject to certain customary purchase price adjustments, and potential additional milestone payments of up to USD 0.7 billion, which Gyroscope shareholders are eligible to receive upon achievement of specified milestones. The acquisition closed on February 17, 2022.
The fair value of the total purchase consideration was USD 1.0 billion. The amount consisted of an upfront cash payment of USD 0.8 billion (including customary purchase price adjustments) and the fair value of contingent consideration of USD 0.2 billion, which Gyroscope shareholders are eligible to receive upon achievement of specified milestones. The purchase price allocation resulted in net identifiable assets of USD 0.9 billion, consisting primarily of intangible assets of USD 1.1 billion and net deferred tax liabilities of USD 0.2 billion. Goodwill amounted to USD 0.1 billion.
The 2022 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 | 2023 | 2022 | H1 2023 | H1 2022 | |||||||
Balance at beginning of year | 2 119.6 | 2 234.9 | 59 342 | 67 655 | |||||||
Shares acquired to be canceled | -61.3 | -61.7 | -5 767 | -5 381 | |||||||
Other share purchases | -1.3 | -1.2 | -121 | -109 | |||||||
Exercise of options and employee transactions | 4.1 | 2.8 | 1.9 | 153 | 91 | ||||||
Equity-based compensation | 8.5 | 8.9 | 433 | 437 | |||||||
Shares delivered to Alcon employees as a result of the Alcon spin-off | 0.0 | 5 | |||||||||
Taxes on treasury share transactions | 8 | 11 | |||||||||
Decrease of treasury share repurchase obligation under a share buyback trading plan | 4.2 | 2 809 | |||||||||
Dividends | -7 255 | -7 506 | |||||||||
Net income of the period attributable to shareholders of Novartis AG | 4 609 | 3 916 | |||||||||
Other comprehensive income attributable to shareholders of Novartis AG | 387 | 857 | |||||||||
Other movements | 4.3 | 58 | 140 | ||||||||
Balance at June 30 | 2 068.3 | 2 182.8 | 51 847 | 62 925 | |||||||
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4.1. At December 31, 2022, the market maker held 3 million (December 31, 2021: 3 million) written call options, originally issued as part of the share-based compensation for employees, that had not yet been exercised. The weighted average exercise price of these options at December 31, 2022, was USD 66.07 (December 31, 2021: USD 61.45), and they had contractual lives of 10 years, with remaining lives less than one year (December 31, 2021: two years). In the first quarter of 2023, the market maker exercised 3 million written call options and as a result there are no written call option outstanding at June 30, 2023.
4.2. In December 2021, Novartis entered into an irrevocable, non-discretionary arrangement with a bank to repurchase Novartis shares on the second trading line under its up-to USD 15.0 billion share buyback. The arrangement was updated in July 2022, December 2022, and May 2023, and concluded in June 2023. In addition, in June 2023, Novartis entered into a new irrevocable, non-discretionary arrangement with a bank to repurchase 11.7 million Novartis shares on the second trading line. Novartis is able to cancel this arrangement but would be subject to a 90-day waiting period under certain conditions. As of June 30, 2023, these waiting period conditions were not applicable and as a result, there was no requirement to record a liability under this arrangement as of June 30, 2023.
4.3. Other movements include, for subsidiaries in hyperinflationary economies, the impact of the restatement of the equity balances of the current period as well as restatement of the non-monetary assets and liabilities with the general price index at the beginning of the period.
5. Financial instruments
Fair value by hierarchy
The following table illustrates the three hierarchical levels for valuing financial instruments at fair value as of June 30, 2023, and December 31, 2022. For additional information on the hierarchies and other matters, please refer to the Consolidated Financial Statements in the 2022 Annual Report, published on February 1, 2023.
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||
(USD millions) | Jun 30, 2023 | Dec 31, 2022 | Jun 30, 2023 | Dec 31, 2022 | Jun 30, 2023 | Dec 31, 2022 | Jun 30, 2023 | Dec 31, 2022 | |||||||||
Financial assets | |||||||||||||||||
Cash and cash equivalents | |||||||||||||||||
Debt securities | 49 | 49 | |||||||||||||||
Total cash and cash equivalents at fair value | 49 | 49 | |||||||||||||||
Marketable securities | |||||||||||||||||
Debt securities | 8 | 9 | 8 | 9 | |||||||||||||
Derivative financial instruments | 102 | 204 | 102 | 204 | |||||||||||||
Total marketable securities and derivative financial instruments at fair value | 110 | 213 | 110 | 213 | |||||||||||||
Current contingent consideration receivables | 58 | 43 | 58 | 43 | |||||||||||||
Long-term financial investments | |||||||||||||||||
Debt and equity securities | 488 | 473 | 11 | 10 | 599 | 699 | 1 098 | 1 182 | |||||||||
Fund investments | 7 | 20 | 194 | 261 | 201 | 281 | |||||||||||
Non-current contingent consideration receivables | 675 | 607 | 675 | 607 | |||||||||||||
Total long-term financial investments at fair value | 495 | 493 | 11 | 10 | 1 468 | 1 567 | 1 974 | 2 070 | |||||||||
Associated companies at fair value through profit or loss | 114 | 129 | 114 | 129 | |||||||||||||
Financial liabilities | |||||||||||||||||
Current contingent consideration liabilities | -29 | -131 | -29 | -131 | |||||||||||||
Current other financial liabilities | -189 | -189 | |||||||||||||||
Derivative financial instruments | -40 | -55 | -40 | -55 | |||||||||||||
Total current financial liabilities at fair value | -40 | -55 | -218 | -131 | -258 | -186 | |||||||||||
Non-current contingent consideration liabilities | -593 | -704 | -593 | -704 | |||||||||||||
Non-current other financial liabilities | -232 | -232 | |||||||||||||||
Total non-current financial liabilities at fair value | -593 | -936 | -593 | -936 | |||||||||||||
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In the first half of 2023, there were three transfers of equity securities from Level 3 to Level 1 for USD 63 million mainly due to Initial Public Offering.
The fair value of straight bonds amounted to USD 20.7 billion at June 30, 2023 (USD 20.3 billion at December 31, 2022) compared with the carrying amount of USD 22.5 billion at June 30, 2023 (USD 22.3 billion at December 31, 2022). 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 2.0 billion at June 30, 2023 (USD 2.1 billion at December 31, 2022) is included in the line “Financial assets” of the consolidated balance sheets. The carrying amount of non-current contingent consideration liabilities and non-current other financial liabilities included in the line total non-current financial liabilities at fair value of USD 0.6 billion at June 30, 2023 (USD 0.9 billion at December 31, 2022) is included in the line “Provisions and other non-current liabilities” of the consolidated balance sheet.
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.
6. Details to the consolidated statements of cash flows
6.1. Non-cash items and other adjustments
The following table shows the reversal of non-cash items and other adjustments in the consolidated statements of cash flows.
(USD millions) | Q2 2023 | Q2 2022 | |||
Depreciation, amortization and impairments on: | |||||
Property, plant and equipment | 262 | 507 | |||
Right-of-use assets | 77 | 76 | |||
Intangible assets | 1 486 | 1 219 | |||
Financial assets 1 | 28 | 97 | |||
Change in provisions and other non-current liabilities | 73 | 547 | |||
Losses/(gains) on disposal and other adjustments on property, plant and equipment; intangible assets; financial assets; and other non-current assets, net | 85 | -114 | |||
Equity-settled compensation expense | 233 | 204 | |||
Loss from associated companies | 2 | ||||
Income taxes | 452 | 347 | |||
Net financial expense | 149 | 186 | |||
Other | 36 | -8 | |||
Total | 2 883 | 3 061 | |||
1 Includes fair value changes |
(USD millions) | H1 2023 | H1 2022 | |||
Depreciation, amortization and impairments on: | |||||
Property, plant and equipment | 565 | 821 | |||
Right-of-use assets | 151 | 154 | |||
Intangible assets | 3 105 | 2 232 | |||
Financial assets 1 | 75 | 199 | |||
Change in provisions and other non-current liabilities | 585 | 635 | |||
Gains on disposal and other adjustments on property, plant and equipment; intangible assets; financial assets; and other non-current assets, net | -217 | -192 | |||
Equity-settled compensation expense | 432 | 407 | |||
Loss from associated companies | 3 | 2 | |||
Income taxes | 898 | 797 | |||
Net financial expense | 264 | 367 | |||
Other | 29 | -8 | |||
Total | 5 890 | 5 414 | |||
1 Includes fair value changes |
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In the second quarter of 2023, there were no additions to intangible assets (Q2 2022: nil; other than through business combinations) with deferred payments. In the second quarter of 2023, there were USD 74 million (Q2 2022: USD 79 million) additions to right-of-use assets recognized.
In the first half of 2023, there were no additions to intangible assets with deferred payments. In the first half of 2022, other than through business combinations, there were USD 0.3 billion additions to intangible assets with deferred payments. In the first half of 2023, there were USD 225 million (H1 2022: USD 122 million) additions to right-of-use assets recognized.
6.2. Cash flows from changes in working capital and other operating items included in the net cash flows from operating activities
(USD millions) | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | |||||
Increase in inventories | -376 | -194 | -996 | -619 | |||||
Increase in trade receivables | -425 | -413 | -1 275 | -909 | |||||
Increase/(decrease) in trade payables | 127 | 11 | 214 | -132 | |||||
Change in other current and non-current assets | -111 | 70 | -288 | -293 | |||||
Change in other current liabilities | 623 | 472 | 679 | -112 | |||||
Total | -162 | -54 | -1 666 | -2 065 | |||||
6.3. Cash flows arising from acquisitions and divestments of businesses, net
The following table is a summary of the cash flow impact of acquisitions and divestments of businesses. The most significant transactions are described in Note 3.
(USD millions) | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | |||||
Net assets recognized as a result of acquisitions of businesses | 0 | -107 | 0 | -1 086 | |||||
Fair value of previously held equity interests | 24 | 24 | |||||||
Contingent consideration payable, net | 31 | -26 | 212 | ||||||
Payments (incl. prepayments), deferred consideration and other adjustments, net | -100 | 12 | -100 | -13 | |||||
Cash flows used for acquisitions of businesses | -100 | -40 | -126 | -863 | |||||
Cash flows from/(used for) divestments of businesses, net 1 | 16 | -19 | 3 | -17 | |||||
Cash flows used for acquisitions and divestments of businesses, net | -84 | -59 | -123 | -880 | |||||
1 In the first half of 2023, USD 3 million (Q2 2023: USD 16 million) represented the net cash inflows from divestments in prior years. | |||||||||
In the first half of 2022, USD 17 million (Q2 2022: USD 19 million) net cash outflows from divestments of businesses included USD 20 million (Q2 2022: USD 20 million) reduction to cash and cash equivalents due to the derecognized cash and cash equivalents following a loss of control of a company upon expiry of an option to purchase the company, partly offset by net cash inflows of USD 3 million (Q2 2022: USD 1 million) from business divestments in the 2022 periods and in prior years. | |||||||||
In the first half of 2022, the net identifiable assets of divested businesses amounted to USD 140 million (Q2 2022: USD 106 million), comprised of non-current assets of USD 118 million (Q2 2022: USD 113 million), current assets of USD 65 million (Q2 2022: USD 36 million), including USD 29 million (Q2 2022: USD 20 million) cash and cash equivalents and of non-current and current liabilities of USD 43 million (Q2 2022: USD 43 million). The deferred sale price receivable and other adjustments amounted to USD 25 million (Q2 2022: nil). |
Notes 3 and 7 provide further information regarding acquisitions and divestments of businesses. All acquisitions were for cash.
33
7. Acquisitions of businesses
Fair value of assets and liabilities arising from acquisitions of businesses:
(USD millions) | H1 2023 | H1 2022 | |||
Property, plant and equipment | 13 | ||||
Right-of-use assets | 12 | ||||
Acquired research and development | 1 223 | ||||
Deferred tax assets | 53 | ||||
Other current assets | 5 | ||||
Cash and cash equivalents | 89 | ||||
Deferred tax liabilities | -303 | ||||
Current and non-current lease liabilities | -12 | ||||
Trade payables and other liabilities | -68 | ||||
Net identifiable assets acquired | 0 | 1 012 | |||
Acquired cash and cash equivalents | -89 | ||||
Goodwill | 163 | ||||
Net assets recognized as a result of acquisitions of businesses | 0 | 1 086 | |||
Note 3 details significant acquisitions of businesses. There were no significant acquisitions of businesses in the first half of 2023. In the first half of 2022, there was the acquisition of Gyroscope. The goodwill arising out of the Gyroscope acquisition was mainly attributable to the accounting for deferred tax liabilities on acquired assets and the assembled workforce. None of the goodwill arisen in the first half of 2022 was 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 2022 Annual Report and 2022 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 July 17, 2023, of significant developments in those proceedings, as well as any new significant proceedings commenced since the date of the 2022 Annual Report and 2022 Form 20-F.
Investigations and related litigations
Government generic pricing antitrust investigations, antitrust class actions
Since 2016, Sandoz Inc. has been part of an investigation into alleged price fixing and market allocation of generic drugs in the United States. In 2020, Sandoz Inc. reached a resolution with the DOJ Antitrust Division, pursuant to which Sandoz Inc. paid USD 195 million and entered into a deferred prosecution agreement (DPA). The Sandoz Inc. resolution related to instances of misconduct at the Company between 2013 and 2015 with regard to certain generic drugs sold in the United States. The term of the DPA concluded in March 2023 and the underlying matter has been dismissed. Sandoz Inc. also finalized a resolution with the DOJ Civil Division and in 2021 paid USD 185 million to settle related claims arising under the False Claims Acts (FCA), and entered into a corporate integrity agreement with the Office of Inspector General (OIG) of the US Department of Health and Human Services (HHS). This resolved all federal government matters related to price fixing allegations.
Since the third quarter of 2016, Sandoz Inc. and Fougera Pharmaceuticals Inc. have been sued alongside other generic pharmaceutical companies in numerous related individual and putative class action complaints by direct and indirect private purchasers and by over 50 US states and territories, represented by their respective Attorneys General. Plaintiffs claim that defendants, including Sandoz Inc., engaged in price fixing and market allocation of generic drugs in the United States, and seek damages and injunctive relief. The litigation includes complaints alleging product-specific conspiracies, as well as complaints alleging the existence of an overarching industry conspiracy, and assert claims for damages and penalties under federal and state antitrust and consumer
34
protection acts. The cases have been consolidated for pretrial purposes in the United States District Court (USDC) for the Eastern District of Pennsylvania, and the claims are being vigorously contested.
Lucentis/Avastin® matters
In connection with an investigation into whether Novartis entities, F. Hoffmann-La Roche AG, Genentech Inc. and Roche S.p.A. colluded to artificially preserve the market positions of Avastin® and Lucentis, in 2014 the Italian Competition Authority (ICA) imposed a fine equivalent to USD 125 million on the Novartis entities. Novartis paid the fine, subject to the right to later claim recoupment, and appealed before the Consiglio di Stato (CdS). In 2014 and 2015, the Italian Ministry of Health and the Lombardia region sent letters with payment requests for a total equivalent of approximately USD 1.3 billion in damages from Novartis and Roche entities based on these allegations. In 2019, the CdS upheld the ICA decision and fine. Following that CdS decision, several additional Italian regions and hospitals sent letters claiming damages for an aggregate amount of approximately USD 330 million. Novartis filed a revocation action before the CdS in 2019 and a further appeal before the Supreme Court in 2020. Respectively in October 2021 and May 2023, the Supreme Court and the CdS rejected Novartis’s actions.
The ICA decision is now final.
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 wet age-related macular degeneration from 2008 to 2013. In 2020, the FCA issued a decision finding that the Novartis entities had infringed competition law by abusing a dominant position and imposing a fine equivalent to approximately USD 452 million. Novartis paid the fine, again subject to recoupment, and appealed the FCA’s decision. In February 2023, the Paris Court of Appeal (Court) overturned the FCA’s decision which triggered the reimbursement of the originally paid fine (recorded as “Other income” in the Company’s consolidated income statement), and in March 2023, the FCA filed an appeal of the Court’s decision. Novartis entities are the subject of similar investigations and proceedings involving competition authorities, which are disclosed in the 2022 Annual Report and 2022 Form 20-F.
Antitrust class actions
Exforge
Since 2018, Novartis Group companies as well as other pharmaceutical companies have been sued by various direct and indirect purchasers of Exforge in multiple US individual and putative class action complaints. They claim that Novartis made a reverse payment in the form of an agreement not to launch an authorized generic, alleging violations of federal antitrust law and state antitrust, consumer protection and common laws, and seeking damages as well as injunctive relief. The cases have been consolidated in the S.D.N.Y. In 2022, Novartis agreed to a settlement in principle to pay USD 245 million to resolve these cases. In Q1 2023 Novartis paid USD 245 million to fund the required trust accounts. These settlements are subject to finalization of documentation and, in some cases, court approval.
In addition to the matters described above, there have been other non-material developments in the other legal matters described in Note 20 to the Consolidated Financial Statements contained in our 2022 Annual Report and 2022 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.
35
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 pharmaceuticals. The Innovative Medicines Division is organized in two commercial organizational units: Innovative Medicines International and Innovative Medicines US, and is focused on the core therapeutic areas: cardiovascular; immunology; neuroscience; solid tumors and hematology; as well as other promoted brands (in the therapeutic areas of ophthalmology and respiratory) and established brands.
Sandoz develops, manufactures and markets finished dosage form medicines as well as intermediary products including active pharmaceutical ingredients. Effective in the second quarter of 2023, Sandoz is organized globally into two franchises: Generics and Biosimilars. In Generics, Sandoz develops, manufactures and markets finished dosage forms of small molecule pharmaceuticals for sale to third parties across a broad range of therapeutic areas, including finished dosage form of anti-infectives sold to third parties, as well as, active pharmaceutical ingredients and intermediates, mainly antibiotics, for sale to third-party companies. In Biosimilars, Sandoz develops, manufactures and markets protein- or other biotechnology-based products, including biosimilars, and provides biotechnology manufacturing services to other companies. Prior to the second quarter of 2023, Sandoz was organized globally into three business franchises of Retail Generics, Anti-Infectives and Biopharmaceuticals. The change in the second quarter of 2023 combined Retail Generics and Anti-infectives to form Generics, and Biopharmaceuticals was renamed to Biosimilars.
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.
Our divisions are supported by Novartis Institutes for BioMedical Research, Global Drug Development, and the Operations unit.
Effective January 1, 2023, the Sandoz Division’s biotechnology manufacturing services to other companies’ activities and the Coartem brand were transferred to the Innovative Medicines Division. The reporting of the financial results and the net assets of the reporting segments Innovative Medicines, Sandoz and Corporate have been accordingly adapted. To comply with IFRS, Novartis has restated its segmentation disclosure of the consolidated income statement and additional consolidated balance sheet disclosure to reflect these transfers. This restatement had no impact on the reported financial results and consolidated balance sheet of the total Group.
Further details are provided in Note 3 to the Consolidated Financial Statements of the 2022 Annual Report.
36
Segmentation – Consolidated income statements
Second quarter
Innovative Medicines | Sandoz | Corporate (including eliminations)1 | Group | ||||||||||||||
(USD millions) | Q2 2023 | Q2 2022 restated2 | Q2 2023 | Q2 2022 restated2 | Q2 2023 | Q2 2022 restated2 | Q2 2023 | Q2 2022 | |||||||||
Net sales to third parties | 11 243 | 10 525 | 2 379 | 2 256 | 13 622 | 12 781 | |||||||||||
Sales to other segments | 192 | 178 | 57 | 55 | -249 | -233 | |||||||||||
Net sales | 11 435 | 10 703 | 2 436 | 2 311 | -249 | -233 | 13 622 | 12 781 | |||||||||
Other revenues | 304 | 295 | 6 | 7 | 4 | 2 | 314 | 304 | |||||||||
Cost of goods sold | -3 338 | -2 773 | -1 250 | -1 212 | 247 | 234 | -4 341 | -3 751 | |||||||||
Gross profit | 8 401 | 8 225 | 1 192 | 1 106 | 2 | 3 | 9 595 | 9 334 | |||||||||
Selling, general and administration | -2 955 | -2 956 | -594 | -503 | -137 | -122 | -3 686 | -3 581 | |||||||||
Research and development | -2 304 | -2 302 | -222 | -196 | -2 526 | -2 498 | |||||||||||
Other income | 108 | 207 | 14 | 23 | 25 | 73 | 147 | 303 | |||||||||
Other expense | -251 | -968 | -178 | -73 | -181 | -289 | -610 | -1 330 | |||||||||
Operating income | 2 999 | 2 206 | 212 | 357 | -291 | -335 | 2 920 | 2 228 | |||||||||
as % of net sales | 26.7% | 21.0% | 8.9% | 15.8% | 21.4% | 17.4% | |||||||||||
Loss from associated companies | 1 | 1 | -2 | -2 | -2 | ||||||||||||
Interest expense | -224 | -202 | |||||||||||||||
Other financial income and expense | 75 | 16 | |||||||||||||||
Income before taxes | 2 769 | 2 042 | |||||||||||||||
Income taxes | -452 | -347 | |||||||||||||||
Net income | 2 317 | 1 695 | |||||||||||||||
1 Eliminations mainly relate to the elimination of sales to other segments and the corresponding cost of goods sold. | |||||||||||||||||
2 Restated to reflect the transfers of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities and the Coartem brand to the Innovative Medicines Division that was effective as of January 1, 2023. |
First half
Innovative Medicines | Sandoz | Corporate (including eliminations)1 | Group | ||||||||||||||
(USD millions) | H1 2023 | H1 2022 restated2 | H1 2023 | H1 2022 restated2 | H1 2023 | H1 2022 restated2 | H1 2023 | H1 2022 | |||||||||
Net sales to third parties | 21 813 | 20 755 | 4 762 | 4 557 | 26 575 | 25 312 | |||||||||||
Sales to other segments | 424 | 388 | 149 | 102 | -573 | -490 | |||||||||||
Net sales | 22 237 | 21 143 | 4 911 | 4 659 | -573 | -490 | 26 575 | 25 312 | |||||||||
Other revenues | 550 | 569 | 12 | 13 | 7 | 5 | 569 | 587 | |||||||||
Cost of goods sold | -6 328 | -5 695 | -2 517 | -2 434 | 573 | 522 | -8 272 | -7 607 | |||||||||
Gross profit | 16 459 | 16 017 | 2 406 | 2 238 | 7 | 37 | 18 872 | 18 292 | |||||||||
Selling, general and administration | -5 715 | -5 842 | -1 136 | -1 016 | -278 | -235 | -7 129 | -7 093 | |||||||||
Research and development | -4 879 | -4 414 | -441 | -404 | -5 320 | -4 818 | |||||||||||
Other income | 859 | 352 | 24 | 71 | 234 | 106 | 1 117 | 529 | |||||||||
Other expense | -1 050 | -1 280 | -322 | -138 | -392 | -412 | -1 764 | -1 830 | |||||||||
Operating income | 5 674 | 4 833 | 531 | 751 | -429 | -504 | 5 776 | 5 080 | |||||||||
as % of net sales | 26.0% | 23.3% | 11.2% | 16.5% | 21.7% | 20.1% | |||||||||||
Loss from associated companies | 1 | 1 | 1 | 1 | -5 | -4 | -3 | -2 | |||||||||
Interest expense | -435 | -403 | |||||||||||||||
Other financial income and expense | 171 | 36 | |||||||||||||||
Income before taxes | 5 509 | 4 711 | |||||||||||||||
Income taxes | -898 | -797 | |||||||||||||||
Net income | 4 611 | 3 914 | |||||||||||||||
1 Eliminations mainly relate to the elimination of sales to other segments and the corresponding cost of goods sold. | |||||||||||||||||
2 Restated to reflect the transfers of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities and the Coartem brand to the Innovative Medicines Division that was effective as of January 1, 2023. |
37
Segmentation – Additional consolidated balance sheets and income statements disclosure
Innovative Medicines | Sandoz | Corporate (including eliminations)1 | Group | ||||||||||||||
(USD millions) | Jun 30, 2023 | Dec 31, 2022 restated | Jun 30, 2023 | Dec 31, 2022 restated | Jun 30, 2023 | Dec 31, 2022 | Jun 30, 2023 | Dec 31, 2022 | |||||||||
Total assets 2 | 75 633 | 75 836 | 16 677 | 15 752 | 18 669 | 25 865 | 110 979 | 117 453 | |||||||||
Total liabilities | -16 942 | -16 966 | -4 195 | -3 710 | -37 911 | -37 354 | -59 048 | -58 030 | |||||||||
Total equity | 51 931 | 59 423 | |||||||||||||||
Net debt 3 | 15 374 | 7 245 | 15 374 | 7 245 | |||||||||||||
Net operating assets 2 | 58 691 | 58 870 | 12 482 | 12 042 | -3 868 | -4 244 | 67 305 | 66 668 | |||||||||
Included in net operating assets are: | |||||||||||||||||
Property, plant and equipment | 8 463 | 8 488 | 1 965 | 1 861 | 397 | 415 | 10 825 | 10 764 | |||||||||
Goodwill 2 | 21 992 | 21 857 | 7 530 | 7 444 | 29 522 | 29 301 | |||||||||||
Intangible assets other than goodwill | 26 152 | 29 826 | 1 427 | 1 460 | 424 | 358 | 28 003 | 31 644 | |||||||||
1 Eliminations mainly relate to the elimination of intercompany receivables and payables to other segments and inventories. | |||||||||||||||||
2 December 31, 2022, restated to reflect the transfers of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities and the Coartem brand to the Innovative Medicines Division that was effective January 1, 2023. These restatements had no impact on Corporate or the total Group. | |||||||||||||||||
3 See page 49 for additional disclosures related to net debt. |
The following table shows the property, plant and equipment impairment charges and reversals, the right-of-use assets impairment charges, the intangible assets impairment charges and additions to restructuring provisions:
Second quarter
Innovative Medicines | Sandoz | Corporate | Group | ||||||||||||||
(USD millions) | Q2 2023 | Q2 2022 | Q2 2023 | Q2 2022 | Q2 2023 | Q2 2022 | Q2 2023 | Q2 2022 | |||||||||
Property, plant and equipment impairment charges | -31 | -236 | -1 | -1 | -32 | -237 | |||||||||||
Property, plant and equipment impairment reversals | 39 | 1 | 2 | 40 | 2 | ||||||||||||
Intangible assets impairment charges 1 | -453 | -226 | -2 | -4 | -455 | -230 | |||||||||||
Additions to restructuring provisions | -33 | -316 | -11 | -20 | -23 | -162 | -67 | -498 | |||||||||
1 The second quarter of 2023 includes an impairment of USD 0.3 billion for the write-down of a currently marketed product to reflect reduction in recoverable amount. |
First half
Innovative Medicines | Sandoz | Corporate | Group | ||||||||||||||
(USD millions) | H1 2023 | H1 2022 | H1 2023 | H1 2022 | H1 2023 | H1 2022 | H1 2023 | H1 2022 | |||||||||
Property, plant and equipment impairment charges | -58 | -258 | -2 | -1 | -1 | -60 | -260 | ||||||||||
Property, plant and equipment impairment reversal | 48 | 2 | 1 | 3 | 49 | 5 | |||||||||||
Right-of-use assets impaiment charges | -1 | -1 | |||||||||||||||
Intangible assets impairment charges 1 | -926 | -263 | -14 | -4 | -940 | -267 | |||||||||||
Additions to restructuring provisions | -411 | -360 | -16 | -30 | -55 | -172 | -482 | -562 | |||||||||
1 The first half of 2023 includes an impairment of USD 0.3 billion due to the write-down of IPR&D related to cessation of clinical development program NIZ985 and of USD 0.3 billion for the write-down of a currently marketed product to reflect reduction in recoverable amount. |
In the first half of 2023, there were no reversals of prior-year impairment charges on intangible assets (H1 2022: nil) and right-of-use assets (H1 2022: nil).
38
Pending divestment of intangible assets – Innovative Medicines
On June 30, 2023, Novartis entered into an agreement with Bausch + Lomb Corporation to divest the currently marketed product Xiidra and certain IPR&D assets related to ‘front of eye’ ophthalmology. The transaction will be accounted for as a divestment of assets. The purchase price will consist of a total cash payment of USD 1.75 billion and potential milestone payments related to the currently marketed product and IPR&D assets of up to USD 750 million. The transaction is expected to be completed in the second half of 2023, pending customary closing conditions, including receipt of regulatory approval.
As of June 30, 2023, the carrying value of the currently marketed product intangible asset (USD 1.72 billion) and its related contingent consideration liability (USD 34 million) have been reclassified and presented separately as asset and liability held for sale in the Consolidated balance sheet. The amortization of the currently marketed product was ceased as of June 30, 2023. The IPR&D assets to be divested had no carrying value at June 30, 2023.
There are no cumulative income or expenses included in other comprehensive income relating to the non-cur- rent asset classified as held for sale.
Restructuring provisions movements
(USD millions) | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | |||||
Balance at beginning of period | 1 209 | 331 | 1 131 | 345 | |||||
Additions | 67 | 498 | 482 | 562 | |||||
Cash payments | -173 | -76 | -490 | -144 | |||||
Releases | -63 | -10 | -95 | -15 | |||||
Transfers | 1 | -1 | 0 | ||||||
Currency translation effects | 4 | -11 | 17 | -17 | |||||
Balance at closing of period | 1 045 | 731 | 1 045 | 731 | |||||
In the first half of 2023, additions to provisions of USD 482 million (Q2: USD 67 million) were mainly related to the continuation of the initiative announced in April 2022, to implement a new streamlined organizational model designed to support innovation, growth and productivity.
In the first half of 2022, additions to provisions of USD 562 million (Q2: USD 498 million) were mainly related to the initiative announced in April 2022, to implement a new streamlined organizational model designed to support innovation, growth and productivity, as well as, to the continuation of the Innovative Medicines Division and the Operations unit 2021 restructuring initiatives.
39
Segmentation – Net sales to third parties
Net sales by region1
Second quarter
Q2 2023 USD m | Q2 2022 restated USD m2 | % change USD | % change cc3 | Q2 2023 % of total | Q2 2022 % of total | ||||||||
Innovative Medicines | |||||||||||||
Europe | 3 496 | 3 481 | 0 | 2 | 31 | 33 | |||||||
US | 4 503 | 3 967 | 14 | 14 | 40 | 38 | |||||||
Asia/Africa/Australasia | 2 418 | 2 328 | 4 | 10 | 22 | 22 | |||||||
Canada and Latin America | 826 | 749 | 10 | 19 | 7 | 7 | |||||||
Total | 11 243 | 10 525 | 7 | 9 | 100 | 100 | |||||||
Of which in Established Markets | 8 276 | 7 742 | 7 | 7 | 74 | 74 | |||||||
Of which in Emerging Growth Markets | 2 967 | 2 783 | 7 | 17 | 26 | 26 | |||||||
Sandoz | |||||||||||||
Europe | 1 329 | 1 192 | 11 | 13 | 56 | 53 | |||||||
US | 378 | 411 | -8 | -8 | 16 | 18 | |||||||
Asia/Africa/Australasia | 395 | 406 | -3 | 4 | 17 | 18 | |||||||
Canada and Latin America | 277 | 247 | 12 | 16 | 11 | 11 | |||||||
Total | 2 379 | 2 256 | 5 | 8 | 100 | 100 | |||||||
Of which in Established Markets | 1 685 | 1 581 | 7 | 7 | 71 | 70 | |||||||
Of which in Emerging Growth Markets | 694 | 675 | 3 | 10 | 29 | 30 | |||||||
Group | |||||||||||||
Europe | 4 825 | 4 673 | 3 | 5 | 35 | 37 | |||||||
US | 4 881 | 4 378 | 11 | 11 | 36 | 34 | |||||||
Asia/Africa/Australasia | 2 813 | 2 734 | 3 | 9 | 21 | 21 | |||||||
Canada and Latin America | 1 103 | 996 | 11 | 18 | 8 | 8 | |||||||
Total | 13 622 | 12 781 | 7 | 9 | 100 | 100 | |||||||
Of which in Established Markets | 9 961 | 9 323 | 7 | 7 | 73 | 73 | |||||||
Of which in Emerging Growth Markets | 3 661 | 3 458 | 6 | 15 | 27 | 27 | |||||||
1 Net sales to third parties by location of customer. Emerging Growth Markets comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand. | |||||||||||||
2 Restated to reflect the transfers of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities and the Coartem brand to the Innovative Medicines Division that was effective as of January 1, 2023. These restatements had no impact on the total Group. | |||||||||||||
3 Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 48. |
40
Net sales by region1
First half
H1 2023 USD m | H1 2022 restated USD m2 | % change USD | % change cc3 | H1 2023 % of total | H1 2022 % of total | ||||||||
Innovative Medicines | |||||||||||||
Europe | 6 917 | 7 010 | -1 | 2 | 32 | 34 | |||||||
US | 8 575 | 7 642 | 12 | 12 | 39 | 37 | |||||||
Asia/Africa/Australasia | 4 717 | 4 656 | 1 | 9 | 22 | 22 | |||||||
Canada and Latin America | 1 604 | 1 447 | 11 | 19 | 7 | 7 | |||||||
Total | 21 813 | 20 755 | 5 | 8 | 100 | 100 | |||||||
Of which in Established Markets | 15 954 | 15 314 | 4 | 6 | 73 | 74 | |||||||
Of which in Emerging Growth Markets | 5 859 | 5 441 | 8 | 16 | 27 | 26 | |||||||
Sandoz | |||||||||||||
Europe | 2 695 | 2 427 | 11 | 14 | 57 | 53 | |||||||
US | 758 | 819 | -7 | -7 | 16 | 18 | |||||||
Asia/Africa/Australasia | 772 | 811 | -5 | 4 | 16 | 18 | |||||||
Canada and Latin America | 537 | 500 | 7 | 11 | 11 | 11 | |||||||
Total | 4 762 | 4 557 | 4 | 8 | 100 | 100 | |||||||
Of which in Established Markets | 3 330 | 3 155 | 6 | 8 | 70 | 69 | |||||||
Of which in Emerging Growth Markets | 1 432 | 1 402 | 2 | 8 | 30 | 31 | |||||||
Group | |||||||||||||
Europe | 9 612 | 9 437 | 2 | 5 | 36 | 37 | |||||||
US | 9 333 | 8 461 | 10 | 10 | 35 | 33 | |||||||
Asia/Africa/Australasia | 5 489 | 5 467 | 0 | 8 | 21 | 22 | |||||||
Canada and Latin America | 2 141 | 1 947 | 10 | 17 | 8 | 8 | |||||||
Total | 26 575 | 25 312 | 5 | 8 | 100 | 100 | |||||||
Of which in Established Markets | 19 284 | 18 469 | 4 | 6 | 73 | 73 | |||||||
Of which in Emerging Growth Markets | 7 291 | 6 843 | 7 | 15 | 27 | 27 | |||||||
1 Net sales to third parties by location of customer. Emerging Growth Markets comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand. | |||||||||||||
2 Restated to reflect the transfers of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities and the Coartem brand to the Innovative Medicines Division that was effective as of January 1, 2023. These restatements had no impact on the total Group. | |||||||||||||
3 Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 48. |
41
Innovative Medicines Division net sales to third parties by core therapeutic area; other promoted brands; and established brands
Second quarter
Q2 2023 | Q2 2022 | % change | % change | ||||||
USD m | USD m1 | USD | cc2 | ||||||
Cardiovascular | |||||||||
Entresto | 1 516 | 1 125 | 35 | 37 | |||||
Leqvio | 78 | 22 | 255 | 249 | |||||
Total Cardiovascular | 1 594 | 1 147 | 39 | 41 | |||||
Immunology | |||||||||
Cosentyx | 1 272 | 1 275 | 0 | 1 | |||||
Xolair 3 | 362 | 352 | 3 | 5 | |||||
Ilaris | 316 | 275 | 15 | 17 | |||||
Total Immunology | 1 950 | 1 902 | 3 | 4 | |||||
Neuroscience | |||||||||
Kesimpta | 489 | 239 | 105 | 105 | |||||
Zolgensma | 311 | 379 | -18 | -16 | |||||
Mayzent | 94 | 85 | 11 | 11 | |||||
Aimovig | 67 | 55 | 22 | 24 | |||||
Total Neuroscience | 961 | 758 | 27 | 28 | |||||
Solid Tumors | |||||||||
Tafinlar + Mekinist | 496 | 452 | 10 | 13 | |||||
Kisqali | 493 | 308 | 60 | 66 | |||||
Pluvicto | 240 | 10 | nm | nm | |||||
Lutathera | 150 | 86 | 74 | 75 | |||||
Piqray/Vijoice | 130 | 85 | 53 | 54 | |||||
Votrient | 106 | 124 | -15 | -13 | |||||
Tabrecta | 41 | 30 | 37 | 37 | |||||
Total Solid Tumors | 1 656 | 1 095 | 51 | 54 | |||||
Hematology | |||||||||
Promacta/Revolade | 583 | 534 | 9 | 11 | |||||
Tasigna | 476 | 498 | -4 | -3 | |||||
Jakavi | 435 | 398 | 9 | 11 | |||||
Kymriah | 129 | 136 | -5 | -5 | |||||
Scemblix | 106 | 31 | 242 | 248 | |||||
Adakveo | 53 | 49 | 8 | 8 | |||||
Total Hematology | 1 782 | 1 646 | 8 | 10 | |||||
Other Promoted Brands | |||||||||
Ultibro Group | 114 | 126 | -10 | -8 | |||||
Xiidra | 96 | 126 | -24 | -24 | |||||
Beovu | 53 | 54 | -2 | 0 | |||||
Other respiratory | 23 | 20 | 15 | 22 | |||||
Total Other Promoted Brands | 286 | 326 | -12 | -11 | |||||
Total Promoted Brands | 8 229 | 6 874 | 20 | 22 | |||||
Established Brands | |||||||||
Lucentis | 395 | 501 | -21 | -20 | |||||
Sandostatin | 331 | 318 | 4 | 5 | |||||
Gilenya | 269 | 555 | -52 | -52 | |||||
Exforge Group | 184 | 199 | -8 | -4 | |||||
Galvus Group | 175 | 222 | -21 | -15 | |||||
Diovan Group | 155 | 159 | -3 | 2 | |||||
Gleevec/Glivec | 142 | 194 | -27 | -24 | |||||
Afinitor/Votubia | 116 | 143 | -19 | -17 | |||||
Contract manufacturing 4 | 132 | 83 | 59 | 56 | |||||
Other 5 | 1 115 | 1 277 | -13 | -5 | |||||
Total Established Brands 4, 5 | 3 014 | 3 651 | -17 | -13 | |||||
Total division net sales to third parties 4, 5 | 11 243 | 10 525 | 7 | 9 | |||||
1 In Q1 2023 Lucentis was reclassified from Other Promoted Brands to Established Brands and Gilenya was reclassified from Neuroscience to Established Brands. Q2 2022 has been reclassified to reflect these movements. | |||||||||
2 Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 48. | |||||||||
3 Net sales to third parties reflect Xolair sales for all indications. | |||||||||
4 Q2 2022 restated to reflect the transfer of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities to the Innovative Medicines Division that was effective as of January 1, 2023. | |||||||||
5 Q2 2022 restated to reflect the transfer of the Coartem brand from the Sandoz Division to the Innovative Medicines Division that was effective as of January 1, 2023. | |||||||||
nm = not meaningful |
42
Innovative Medicines Division net sales to third parties by core therapeutic area; other promoted brands; and established brands
First half
H1 2023 | H1 2022 | % change | % change | ||||||
USD m | USD m1 | USD | cc2 | ||||||
Cardiovascular | |||||||||
Entresto | 2 915 | 2 218 | 31 | 35 | |||||
Leqvio | 142 | 36 | 294 | 293 | |||||
Total Cardiovascular | 3 057 | 2 254 | 36 | 39 | |||||
Immunology | |||||||||
Cosentyx | 2 348 | 2 434 | -4 | -1 | |||||
Xolair 3 | 716 | 720 | -1 | 3 | |||||
Ilaris | 644 | 560 | 15 | 18 | |||||
Other | 1 | nm | nm | ||||||
Total Immunology | 3 708 | 3 715 | 0 | 2 | |||||
Neuroscience | |||||||||
Kesimpta | 873 | 434 | 101 | 103 | |||||
Zolgensma | 620 | 742 | -16 | -15 | |||||
Mayzent | 183 | 164 | 12 | 13 | |||||
Aimovig | 128 | 109 | 17 | 21 | |||||
Other | 1 | nm | nm | ||||||
Total Neuroscience | 1 804 | 1 450 | 24 | 26 | |||||
Solid Tumors | |||||||||
Tafinlar + Mekinist | 954 | 855 | 12 | 15 | |||||
Kisqali | 908 | 547 | 66 | 73 | |||||
Pluvicto | 451 | 12 | nm | nm | |||||
Lutathera | 299 | 211 | 42 | 43 | |||||
Piqray/Vijoice | 246 | 158 | 56 | 57 | |||||
Votrient | 211 | 253 | -17 | -15 | |||||
Tabrecta | 77 | 61 | 26 | 27 | |||||
Other | 1 | nm | nm | ||||||
Total Solid Tumors | 3 147 | 2 097 | 50 | 54 | |||||
Hematology | |||||||||
Promacta/Revolade | 1 130 | 1 025 | 10 | 13 | |||||
Tasigna | 938 | 959 | -2 | 1 | |||||
Jakavi | 849 | 787 | 8 | 12 | |||||
Kymriah | 264 | 263 | 0 | 3 | |||||
Scemblix | 182 | 56 | 225 | 228 | |||||
Adakveo | 105 | 93 | 13 | 13 | |||||
Other | 1 | nm | nm | ||||||
Total Hematology | 3 468 | 3 184 | 9 | 12 | |||||
Other Promoted Brands | |||||||||
Ultibro Group | 228 | 258 | -12 | -8 | |||||
Xiidra | 185 | 233 | -21 | -21 | |||||
Beovu | 104 | 102 | 2 | 5 | |||||
Other respiratory | 48 | 39 | 23 | 31 | |||||
Total Other Promoted Brands | 565 | 632 | -11 | -8 | |||||
Total Promoted Brands | 15 749 | 13 332 | 18 | 21 | |||||
Established Brands | |||||||||
Lucentis | 811 | 1 021 | -21 | -17 | |||||
Sandostatin | 660 | 638 | 3 | 5 | |||||
Gilenya | 501 | 1 160 | -57 | -56 | |||||
Exforge Group | 370 | 399 | -7 | -3 | |||||
Galvus Group | 358 | 438 | -18 | -12 | |||||
Diovan Group | 313 | 350 | -11 | -5 | |||||
Gleevec/Glivec | 289 | 392 | -26 | -23 | |||||
Afinitor/Votubia | 226 | 281 | -20 | -17 | |||||
Contract manufacturing 4 | 255 | 182 | 40 | 41 | |||||
Other 5 | 2 281 | 2 562 | -11 | -4 | |||||
Total Established Brands 4, 5 | 6 064 | 7 423 | -18 | -14 | |||||
Total division net sales to third parties 4, 5 | 21 813 | 20 755 | 5 | 8 | |||||
1 In Q1 2023 Lucentis was reclassified from Other Promoted Brands to Established Brands and Gilenya was reclassified from Neuroscience to Established Brands. H1 2022 has been reclassified to reflect these movements. | |||||||||
2 Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 48. | |||||||||
3 Net sales to third parties reflect Xolair sales for all indications. | |||||||||
4 H1 2022 restated to reflect the transfer of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities to the Innovative Medicines Division that was effective as of January 1, 2023. | |||||||||
5 H1 2022 restated to reflect the transfer of the Coartem brand from the Sandoz Division to the Innovative Medicines Division that was effective as of January 1, 2023. | |||||||||
nm = not meaningful |
43
Net sales to third parties of the top 20 Innovative Medicines Division brands in 2023
Second quarter
US | Rest of world | Total | |||||||||||||||||||
Brands | Brand classification by therapeutic area, other promoted brands or established brands | Key indications | USD m | % change USD/cc1 | USD m | % change USD | % change cc1 | USD m | % change USD | % change cc1 | |||||||||||
Entresto | Cardiovascular | Chronic heart failure, hypertension | 755 | 38 | 761 | 32 | 36 | 1 516 | 35 | 37 | |||||||||||
Cosentyx | Immunology | Psoriasis (PsO), ankylosing spondylitis (AS), psoriatic arthritis (PsA), non-radiographic axial spondyloarthritis (nr-axSPA) | 650 | -12 | 622 | 15 | 18 | 1 272 | 0 | 1 | |||||||||||
Promacta/Revolade | Hematology | Immune thrombocytopenia (ITP), severe aplastic anemia (SAA) | 313 | 16 | 270 | 2 | 5 | 583 | 9 | 11 | |||||||||||
Tafinlar + Mekinist | Solid Tumors | BRAF V600+ metastatic adjuvant melanoma, advanced non-small cell lung cancer (NSCLC), tumor agnostic with BRAF mutation indication | 196 | 13 | 300 | 8 | 12 | 496 | 10 | 13 | |||||||||||
Tasigna | Hematology | Chronic myeloid leukemia (CML) | 232 | 6 | 244 | -13 | -10 | 476 | -4 | -3 | |||||||||||
Kisqali | Solid Tumors | HR+/HER2- metastatic breast cancer | 224 | 104 | 269 | 36 | 45 | 493 | 60 | 66 | |||||||||||
Kesimpta | Neuroscience | Relapsing-remitting multiple sclerosis (RRMS) | 373 | 83 | 116 | 231 | 226 | 489 | 105 | 105 | |||||||||||
Jakavi | Hematology | Myelofibrosis (MF), polycytomia vera (PV), graft-versus-host disease (GvHD) | 435 | 9 | 11 | 435 | 9 | 11 | |||||||||||||
Lucentis | Established Brands 2 | Age-related macular degeneration (AMD), diabetic macular edema (DME), retinal vein occlusion (RVO) | 395 | -21 | -20 | 395 | -21 | -20 | |||||||||||||
Xolair 3 | Immunology | Severe allergic asthma (SAA), chronic spontaneous urticaria (CSU), nasal polyps | 362 | 3 | 5 | 362 | 3 | 5 | |||||||||||||
Sandostatin | Established Brands | Carcinoid tumors, acromegaly | 203 | -2 | 128 | 15 | 18 | 331 | 4 | 5 | |||||||||||
Ilaris | Immunology | Auto-inflammatory (CAPS, TRAPS, HIDS/MKD, FMF, SJIA, AOSD, gout) | 163 | 20 | 153 | 10 | 13 | 316 | 15 | 17 | |||||||||||
Zolgensma | Neuroscience | Spinal muscular atrophy (SMA) | 84 | -32 | 227 | -11 | -9 | 311 | -18 | -16 | |||||||||||
Gilenya | Established Brands 2 | Relapsing multiple sclerosis (RMS) | 104 | -69 | 165 | -26 | -26 | 269 | -52 | -52 | |||||||||||
Pluvicto | Solid Tumors | PSMA-positive mCRPC patients post-ARPI, post-Taxane | 227 | nm | 13 | nm | nm | 240 | nm | nm | |||||||||||
Exforge Group | Established Brands | Hypertension | 4 | 33 | 180 | -8 | -4 | 184 | -8 | -4 | |||||||||||
Galvus Group | Established Brands | Type 2 diabetes | 175 | -21 | -15 | 175 | -21 | -15 | |||||||||||||
Diovan Group | Established Brands | Hypertension | 12 | -14 | 143 | -1 | 4 | 155 | -3 | 2 | |||||||||||
Lutathera | Solid Tumors | GEP-NETs gastroenteropancreatic neuroendocrine tumors | 106 | 108 | 44 | 26 | 28 | 150 | 74 | 75 | |||||||||||
Gleevec/Glivec | Established Brands | Chronic myeloid leukemia (CML), gastrointestinal stromal tumors (GIST) | 39 | -32 | 103 | -25 | -21 | 142 | -27 | -24 | |||||||||||
Top 20 brands total | 3 685 | 15 | 5 105 | 4 | 8 | 8 790 | 9 | 11 | |||||||||||||
Rest of portfolio 4 | 818 | 5 | 1 635 | -2 | 5 | 2 453 | 0 | 5 | |||||||||||||
Total division net sales to third parties 4 | 4 503 | 14 | 6 740 | 3 | 7 | 11 243 | 7 | 9 | |||||||||||||
1 Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 48. | |||||||||||||||||||||
2 In Q1 2023 Lucentis was reclassified from Other Promoted Brands to Established Brands and Gilenya was reclassified from Neuroscience to Established Brands. | |||||||||||||||||||||
3 Net sales to third parties reflect Xolair sales for all indications. | |||||||||||||||||||||
4 % change has been restated to reflect the transfers of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities and the Coartem brand to the Innovative Medicines Division that was effective as of January 1, 2023. | |||||||||||||||||||||
nm = not meaningful |
44
Net sales to third parties of the top 20 Innovative Medicines Division brands in 2023
First half
US | Rest of world | Total | |||||||||||||||||||
Brands | Brand classification by therapeutic area, other promoted brands or established brands | Key indications | USD m | % change USD/cc1 | USD m | % change USD | % change cc1 | USD m | % change USD | % change cc1 | |||||||||||
Entresto | Cardiovascular | Chronic heart failure, hypertension | 1 459 | 34 | 1 456 | 29 | 35 | 2 915 | 31 | 35 | |||||||||||
Cosentyx | Immunology | Psoriasis (PsO), ankylosing spondylitis (AS), psoriatic arthritis (PsA), non-radiographic axial spondyloarthritis (nr-axSPA) | 1 178 | -16 | 1 170 | 13 | 18 | 2 348 | -4 | -1 | |||||||||||
Promacta/Revolade | Hematology | Immune thrombocytopenia (ITP), severe aplastic anemia (SAA) | 590 | 14 | 540 | 6 | 11 | 1 130 | 10 | 13 | |||||||||||
Tafinlar + Mekinist | Solid Tumors | BRAF V600+ metastatic adjuvant melanoma, advanced non-small cell lung cancer (NSCLC), tumor agnostic with BRAF mutation indication | 390 | 19 | 564 | 7 | 13 | 954 | 12 | 15 | |||||||||||
Tasigna | Hematology | Chronic myeloid leukemia (CML) | 443 | 5 | 495 | -8 | -3 | 938 | -2 | 1 | |||||||||||
Kisqali | Solid Tumors | HR+/HER2- metastatic breast cancer | 406 | 115 | 502 | 40 | 50 | 908 | 66 | 73 | |||||||||||
Kesimpta | Neuroscience | Relapsing-remitting multiple sclerosis (RRMS) | 668 | 78 | 205 | 253 | 261 | 873 | 101 | 103 | |||||||||||
Jakavi | Hematology | Myelofibrosis (MF), polycytomia vera (PV), graft-versus-host disease (GvHD) | 849 | 8 | 12 | 849 | 8 | 12 | |||||||||||||
Lucentis | Established Brands 2 | Age-related macular degeneration (AMD), diabetic macular edema (DME), retinal vein occlusion (RVO) | 811 | -21 | -17 | 811 | -21 | -17 | |||||||||||||
Xolair 3 | Immunology | Severe allergic asthma (SAA), chronic spontaneous urticaria (CSU), nasal polyps | 716 | -1 | 3 | 716 | -1 | 3 | |||||||||||||
Sandostatin | Established Brands | Carcinoid tumors, acromegaly | 412 | 1 | 248 | 7 | 12 | 660 | 3 | 5 | |||||||||||
Ilaris | Immunology | Auto-inflammatory (CAPS, TRAPS, HIDS/MKD, FMF, SJIA, AOSD, gout) | 304 | 16 | 340 | 14 | 19 | 644 | 15 | 18 | |||||||||||
Zolgensma | Neuroscience | Spinal muscular atrophy (SMA) | 193 | -18 | 427 | -16 | -14 | 620 | -16 | -15 | |||||||||||
Gilenya | Established Brands 2 | Relapsing multiple sclerosis (RMS) | 184 | -71 | 317 | -39 | -37 | 501 | -57 | -56 | |||||||||||
Pluvicto | Solid Tumors | PSMA-positive mCRPC patients post-ARPI, post-Taxane | 432 | nm | 19 | nm | nm | 451 | nm | nm | |||||||||||
Exforge Group | Established Brands | Hypertension | 8 | 14 | 362 | -8 | -3 | 370 | -7 | -3 | |||||||||||
Galvus Group | Established Brands | Type 2 diabetes | 358 | -18 | -12 | 358 | -18 | -12 | |||||||||||||
Diovan Group | Established Brands | Hypertension | 27 | 0 | 286 | -11 | -5 | 313 | -11 | -5 | |||||||||||
Lutathera | Solid Tumors | GEP-NETs gastroenteropancreatic neuroendocrine tumors | 210 | 48 | 89 | 29 | 35 | 299 | 42 | 43 | |||||||||||
Gleevec/Glivec | Established Brands | Chronic myeloid leukemia (CML), gastrointestinal stromal tumors (GIST) | 77 | -28 | 212 | -26 | -21 | 289 | -26 | -23 | |||||||||||
Top 20 brands total | 6 981 | 14 | 9 966 | 2 | 7 | 16 947 | 7 | 10 | |||||||||||||
Rest of portfolio 4 | 1 594 | 7 | 3 272 | -3 | 4 | 4 866 | 0 | 5 | |||||||||||||
Total division net sales to third parties 4 | 8 575 | 12 | 13 238 | 1 | 6 | 21 813 | 5 | 8 | |||||||||||||
1 Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 48. | |||||||||||||||||||||
2 In Q1 2023 Lucentis was reclassified from Other Promoted Brands to Established Brands and Gilenya was reclassified from Neuroscience to Established Brands. | |||||||||||||||||||||
3 Net sales to third parties reflect Xolair sales for all indications. | |||||||||||||||||||||
4 % change has been restated to reflect the transfers of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities and the Coartem brand to the Innovative Medicines Division that was effective as of January 1, 2023. | |||||||||||||||||||||
nm = not meaningful |
45
Sandoz Division net sales to third parties by business franchise
Second quarter
Q2 2023 | Q2 2022 restated1 | % change | % change | ||||||
USD m | USD m | USD | cc2 | ||||||
Generics | 1 848 | 1 783 | 4 | 6 | |||||
Biosimilars | 531 | 473 | 12 | 13 | |||||
Total division net sales to third parties | 2 379 | 2 256 | 5 | 8 | |||||
1 Restated to reflect the transfers of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities (from Biosimilars) and the Coartem brand (from Generics) to the Innovative Medicines Division that was effective as of January 1, 2023. Also restated to reflect the Q2 2023 change in business franchise structure of the Sandoz Division, whereby Retail Generics and Anti-Infectives were combined into the Generics business franchise and Biopharmaceuticals was renamed to Biosimilars. | |||||||||
2 Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 48. | |||||||||
First half
H1 2023 | H1 2022 restated1 | % change | % change | ||||||
USD m | USD m | USD | cc2 | ||||||
Generics | 3 713 | 3 619 | 3 | 6 | |||||
Biosimilars | 1 049 | 938 | 12 | 15 | |||||
Total division net sales to third parties | 4 762 | 4 557 | 4 | 8 | |||||
1 Restated to reflect the transfers of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities (from Biosimilars) and the Coartem brand (from Generics) to the Innovative Medicines Division that was effective as of January 1, 2023. Also restated to reflect the Q2 2023 change in business franchise structure of the Sandoz Division, whereby Retail Generics and Anti-Infectives were combined into the Generics business franchise and Biopharmaceuticals was renamed to Biosimilars. | |||||||||
2 Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 48. |
The product portfolio of Sandoz is widely spread in 2023 and 2022.
Segmentation – Other revenue
Second quarter
Innovative Medicines | Sandoz | Corporate | Group | ||||||||||||||
(USD millions) | Q2 2023 | Q2 2022 | Q2 2023 | Q2 2022 | Q2 2023 | Q2 2022 | Q2 2023 | Q2 2022 | |||||||||
Profit sharing income | 246 | 223 | 246 | 223 | |||||||||||||
Royalty income | 19 | 3 | 4 | 4 | 2 | 23 | 9 | ||||||||||
Milestone income | 25 | 20 | 1 | 25 | 21 | ||||||||||||
Other 1 | 14 | 49 | 2 | 2 | 4 | 20 | 51 | ||||||||||
Total other revenues | 304 | 295 | 6 | 7 | 4 | 2 | 314 | 304 | |||||||||
1 Other includes revenue from activities such as manufacturing or other services rendered, to the extent such revenue is not recorded under net sales. |
First half
Innovative Medicines | Sandoz | Corporate | Group | ||||||||||||||
(USD millions) | H1 2023 | H1 2022 | H1 2023 | H1 2022 | H1 2023 | H1 2022 | H1 2023 | H1 2022 | |||||||||
Profit sharing income | 445 | 428 | 445 | 428 | |||||||||||||
Royalty income | 41 | 6 | 8 | 9 | 5 | 49 | 20 | ||||||||||
Milestone income | 28 | 39 | 1 | 28 | 40 | ||||||||||||
Other 1 | 36 | 96 | 4 | 3 | 7 | 47 | 99 | ||||||||||
Total other revenues | 550 | 569 | 12 | 13 | 7 | 5 | 569 | 587 | |||||||||
1 Other includes revenue from activities such as manufacturing or other services rendered, to the extent such revenue is not recorded under net sales. |
46
10. Events subsequent to the June 30, 2023, consolidated balance sheet
Significant transactions closed in July 2023
In the second quarter of 2023, Novartis entered into an agreement to acquire DTx Pharma Inc. (DTx), a San-Diego US based, pre-clinical stage biotechnology company focused on leveraging its proprietary FALCON platform to develop siRNA therapies for neuroscience indications. The transaction was completed on July 14, 2023. For details see Note 3, “Significant pending transactions entered into in second quarter 2023 and closed in July 2023.”
47
Supplementary information (unaudited)
Non-IFRS disclosures
Novartis uses certain non-IFRS metrics when measuring performance, especially when measuring current-year results against prior periods, including core results, constant currencies and free cash flow.
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 their usefulness to investors.
Because of their non-standardized definitions, the non-IFRS measures (unlike IFRS measures) may not be comparable to the calculation of similar measures of other companies. These non-IFRS measures are presented solely to permit investors to more fully understand how the Group’s management assesses underlying performance. These non-IFRS measures are not, and should not be viewed as, a substitute for IFRS measures.
As an internal measure of Group performance, these non-IFRS measures have limitations, and the Group’s performance management process is not solely restricted to these metrics.
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, software, and financial assets, and 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 since, core measures exclude items that can vary significantly from year to year, they 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.
As an internal measure of Group performance, the core results measures have limitations, and the Group’s performance management process is not solely restricted to these metrics. A limitation of the core results 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, impairments to property, plant and equipment and restructurings and related items.
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
• 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 (excluding the IAS 29 “Financial Reporting in Hyperinflationary Economies” adjustments to the local currency income statements of subsidiaries operating in hyperinflationary economies), 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 that 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 with the prior year is shown as a positive growth.
Free cash flow
Effective January 1, 2023, Novartis revised its definition of free cash flow, to define free cash flow as net cash flows from operating activities less purchases of property, plant and equipment. This new definition provides a simpler performance measure focusing on core operating activities, and also excludes items that can vary
48
significantly from year to year which enables better comparison of business performance across years. The prior year free cash flow amounts have been revised to conform with the new free cash flow definition to aid in comparability.
Free cash flow is a non-IFRS measure and is not intended to be a substitute measure for net cash flows from operating activities as determined under IFRS. 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 investment in strategic opportunities, returning to shareholders and for debt repayment. Free cash flow is a non-IFRS measure, which means it should not be interpreted as a measure determined under IFRS.
Additional information
Net debt
Novartis calculates net debt as current financial debts and derivative financial instruments plus non-current financial debts less cash and cash equivalents and marketable securities, commodities, time deposits and derivative financial instruments.
Net debt is presented as additional information because it sets forth how management monitors net debt or liquidity and 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.
See page 59 for additional disclosures related to net debt.
49
CORE RESULTS – Reconciliation from IFRS results to core results – Group
Second quarter
Innovative Medicines | Sandoz | Corporate | Group | ||||||||||||||
(USD millions unless indicated otherwise) | Q2 2023 | Q2 2022 restated2 | Q2 2023 | Q2 2022 restated2 | Q2 2023 | Q2 2022 restated2 | Q2 2023 | Q2 2022 | |||||||||
IFRS operating income | 2 999 | 2 206 | 212 | 357 | -291 | -335 | 2 920 | 2 228 | |||||||||
Amortization of intangible assets | 914 | 894 | 57 | 56 | 971 | 950 | |||||||||||
Impairments | |||||||||||||||||
Intangible assets | 453 | 226 | 2 | 4 | 455 | 230 | |||||||||||
Property, plant and equipment related to the Group-wide rationalization of manufacturing sites | -36 | 234 | -1 | -2 | -37 | 232 | |||||||||||
Other property, plant and equipment | 22 | 22 | |||||||||||||||
Total impairment charges | 439 | 460 | 1 | 2 | 440 | 462 | |||||||||||
Acquisition or divestment of businesses and related items | |||||||||||||||||
- Income | -3 | -1 | -56 | -59 | -1 | ||||||||||||
- Expense | 1 | 7 | 1 | 7 | |||||||||||||
Total acquisition or divestment of businesses and related items, net | -2 | 6 | -56 | -58 | 6 | ||||||||||||
Other items | |||||||||||||||||
Divestment gains | -6 | -128 | -2 | -6 | -130 | ||||||||||||
Financial assets - fair value adjustments | 33 | 68 | -4 | 28 | 29 | 96 | |||||||||||
Restructuring and related items | |||||||||||||||||
- Income | -49 | -5 | -2 | -4 | -15 | -2 | -66 | -11 | |||||||||
- Expense | 112 | 389 | 45 | 44 | 129 | 219 | 286 | 652 | |||||||||
Legal-related items | |||||||||||||||||
- Income | |||||||||||||||||
- Expense | 2 | 102 | 112 | 4 | 114 | 106 | |||||||||||
Additional income | -64 | -104 | -4 | -1 | 88 | 20 | -105 | ||||||||||
Additional expense | 9 | 23 | 8 | -7 | 1 | 18 | 16 | ||||||||||
Total other items | 37 | 345 | 159 | 36 | 199 | 243 | 395 | 624 | |||||||||
Total adjustments | 1 388 | 1 705 | 217 | 94 | 143 | 243 | 1 748 | 2 042 | |||||||||
Core operating income | 4 387 | 3 911 | 429 | 451 | -148 | -92 | 4 668 | 4 270 | |||||||||
as % of net sales | 39.0% | 37.2% | 18.0% | 20.0% | 34.3% | 33.4% | |||||||||||
(Loss)/income from associated companies | 1 | 1 | -2 | -2 | -2 | 0 | |||||||||||
Interest expense | -224 | -202 | |||||||||||||||
Other financial income and expense | 75 | 16 | |||||||||||||||
Core adjustments to other financial income and expense | 36 | 45 | |||||||||||||||
Income taxes, adjusted for above items (core income taxes) | -742 | -698 | |||||||||||||||
Core net income | 3 811 | 3 431 | |||||||||||||||
Core net income attributable to shareholders of Novartis AG | 3 810 | 3 430 | |||||||||||||||
Core basic EPS (USD) 1 | 1.83 | 1.56 | |||||||||||||||
1 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG. | |||||||||||||||||
2 Restated to reflect the transfers of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities and the Coartem brand to the Innovative Medicines Division that was effective as of January 1, 2023 (see Note 9 in this Condensed Interim Financial Report). |
50
CORE RESULTS – Reconciliation from IFRS results to core results – Group
First half
Innovative Medicines | Sandoz | Corporate | Group | ||||||||||||||
(USD millions unless indicated otherwise) | H1 2023 | H1 2022 restated2 | H1 2023 | H1 2022 restated2 | H1 2023 | H1 2022 restated2 | H1 2023 | H1 2022 | |||||||||
IFRS operating income | 5 674 | 4 833 | 531 | 751 | -429 | -504 | 5 776 | 5 080 | |||||||||
Amortization of intangible assets | 1 941 | 1 772 | 111 | 114 | 2 052 | 1 886 | |||||||||||
Impairments | |||||||||||||||||
Intangible assets | 926 | 263 | 14 | 4 | 940 | 267 | |||||||||||
Property, plant and equipment related to the Group-wide rationalization of manufacturing sites | -43 | 251 | -1 | -2 | -44 | 249 | |||||||||||
Other property, plant and equipment | 22 | 22 | |||||||||||||||
Total impairment charges | 905 | 514 | 13 | 2 | 918 | 516 | |||||||||||
Acquisition or divestment of businesses and related items | |||||||||||||||||
- Income | -3 | -1 | -60 | -2 | -63 | -3 | |||||||||||
- Expense | 3 | 7 | 3 | 7 | |||||||||||||
Total acquisition or divestment of businesses and related items, net | 6 | -60 | -2 | -60 | 4 | ||||||||||||
Other items | |||||||||||||||||
Divestment gains | -136 | -128 | 4 | -20 | -132 | -148 | |||||||||||
Financial assets - fair value adjustments | 72 | 100 | 3 | 98 | 75 | 198 | |||||||||||
Restructuring and related items | |||||||||||||||||
- Income | -74 | -9 | -4 | -10 | -21 | -2 | -99 | -21 | |||||||||
- Expense | 730 | 532 | 80 | 90 | 247 | 236 | 1 057 | 858 | |||||||||
Legal-related items | |||||||||||||||||
- Income | -484 | -51 | -484 | -51 | |||||||||||||
- Expense | 31 | 102 | 201 | 10 | 232 | 112 | |||||||||||
Additional income | -198 | -119 | -7 | -3 | -72 | -277 | -122 | ||||||||||
Additional expense | 14 | 31 | 8 | 10 | 1 | 23 | 41 | ||||||||||
Total other items | -45 | 458 | 278 | 97 | 162 | 312 | 395 | 867 | |||||||||
Total adjustments | 2 801 | 2 750 | 402 | 213 | 102 | 310 | 3 305 | 3 273 | |||||||||
Core operating income | 8 475 | 7 583 | 933 | 964 | -327 | -194 | 9 081 | 8 353 | |||||||||
as % of net sales | 38.9% | 36.5% | 19.6% | 21.2% | 34.2% | 33.0% | |||||||||||
Loss from associated companies | 1 | 1 | 1 | 1 | -5 | -4 | -3 | -2 | |||||||||
Interest expense | -435 | -403 | |||||||||||||||
Other financial income and expense | 171 | 36 | |||||||||||||||
Core adjustments to other financial income and expense | 57 | 57 | |||||||||||||||
Income taxes, adjusted for above items (core income taxes) | -1 446 | -1 359 | |||||||||||||||
Core net income | 7 425 | 6 682 | |||||||||||||||
Core net income attributable to shareholders of Novartis AG | 7 423 | 6 684 | |||||||||||||||
Core basic EPS (USD) 1 | 3.54 | 3.02 | |||||||||||||||
1 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG. | |||||||||||||||||
2 Restated to reflect the transfers of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities and the Coartem brand to the Innovative Medicines Division that was effective as of January 1, 2023 (see Note 9 in this Condensed Interim Financial Report). |
51
CORE RESULTS – Reconciliation from IFRS results to core results – Group
Second quarter
(USD millions unless indicated otherwise) | Q2 2023 IFRS results | Amortization of intangible assets1 | Impairments2 | Acquisition or divestment of businesses and related items3 | Other items4 | Q2 2023 Core results | Q2 2022 Core results | ||||||||
Gross profit | 9 595 | 926 | 310 | 25 | 10 856 | 10 247 | |||||||||
Operating income | 2 920 | 971 | 440 | -58 | 395 | 4 668 | 4 270 | ||||||||
Income before taxes | 2 769 | 971 | 440 | -58 | 431 | 4 553 | 4 129 | ||||||||
Income taxes 5 | -452 | -742 | -698 | ||||||||||||
Net income | 2 317 | 3 811 | 3 431 | ||||||||||||
Basic EPS (USD) 6 | 1.11 | 1.83 | 1.56 | ||||||||||||
The following are adjustments to arrive at core gross profit | |||||||||||||||
Cost of goods sold | -4 341 | 926 | 310 | 25 | -3 080 | -2 838 | |||||||||
The following are adjustments to arrive at core operating income | |||||||||||||||
Selling, general and administration | -3 686 | 13 | -3 673 | -3 589 | |||||||||||
Research and development | -2 526 | 45 | 146 | -14 | -2 349 | -2 251 | |||||||||
Other income | 147 | -39 | -59 | -4 | 45 | 127 | |||||||||
Other expense | -610 | 23 | 1 | 375 | -211 | -264 | |||||||||
The following are adjustments to arrive at core income before taxes | |||||||||||||||
Other financial income and expense | 75 | 36 | 111 | 61 | |||||||||||
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets; research and development includes the amortization of acquired rights for technologies | |||||||||||||||
2 Impairments: cost of goods sold, research and development, other income and other expense include net impairment charges related to intangible assets; other income and other expense includes also net impairment charges related to property, plant and equipment | |||||||||||||||
3 Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income includes a favorable stamp duties tax settlement related to prior periods acquisitions and a reversal of a provision for restructuring and integration costs | |||||||||||||||
4 Other items: cost of goods sold, selling, general and administration, research and development, other income and other expense include restructuring income and charges related to the initiative to implement a new streamlined organizational model, the Sandoz planned spin-off, the Group-wide rationalization of manufacturing sites and other net restructuring charges and related items; cost of goods sold and research and development also include contingent consideration adjustments; selling, general and administration includes adjustments to provisions; other income and other expense include fair value adjustments and divestment gains and losses on financial assets; other expense includes also legal related items; other income includes a fair value adjustment on a contingent receivable | |||||||||||||||
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 1.8 billion to arrive at the core results before tax amounts to USD 290 million. The average tax rate on the adjustments is 16.3% since the quarterly core tax charge of 16.3% 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. |
52
CORE RESULTS – Reconciliation from IFRS results to core results – Group
First half
(USD millions unless indicated otherwise) | H1 2023 IFRS results | Amortization of intangible assets1 | Impairments2 | Acquisition or divestment of businesses and related items3 | Other items4 | H1 2023 Core results | H1 2022 Core results | ||||||||
Gross profit | 18 872 | 1 854 | 322 | 115 | 21 163 | 20 207 | |||||||||
Operating income | 5 776 | 2 052 | 918 | -60 | 395 | 9 081 | 8 353 | ||||||||
Income before taxes | 5 509 | 2 052 | 918 | -60 | 452 | 8 871 | 8 041 | ||||||||
Income taxes 5 | -898 | -1 446 | -1 359 | ||||||||||||
Net income | 4 611 | 7 425 | 6 682 | ||||||||||||
Basic EPS (USD) 6 | 2.20 | 3.54 | 3.02 | ||||||||||||
The following are adjustments to arrive at core gross profit | |||||||||||||||
Cost of goods sold | -8 272 | 1 854 | 322 | 115 | -5 981 | -5 692 | |||||||||
The following are adjustments to arrive at core operating income | |||||||||||||||
Selling, general and administration | -7 129 | 55 | -7 074 | -7 087 | |||||||||||
Research and development | -5 320 | 198 | 620 | -119 | -4 621 | -4 507 | |||||||||
Other income | 1 117 | -47 | -63 | -853 | 154 | 254 | |||||||||
Other expense | -1 764 | 23 | 3 | 1 197 | -541 | -514 | |||||||||
The following are adjustments to arrive at core income before taxes | |||||||||||||||
Other financial income and expense | 171 | 57 | 228 | 93 | |||||||||||
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets; research and development includes the amortization of acquired rights for technologies | |||||||||||||||
2 Impairments: cost of goods sold, research and development, other income and other expense include net impairment charges related to intangible assets; other income and other expense includes also net impairment charges related to property, plant and equipment | |||||||||||||||
3 Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income includes a favorable stamp duties tax settlement related to prior periods acquisitions; other income and other expense include also reversals and charges of restructuring and integration costs | |||||||||||||||
4 Other items: cost of goods sold, selling, general and administration, research and development, other income and other expense include restructuring income and charges related to the initiative to implement a new streamlined organizational model, the Sandoz planned spin-off, the Group-wide rationalization of manufacturing sites and other net restructuring charges and related items; cost of goods sold and research and development also include contingent consideration adjustments; cost of goods sold and selling, general and administration includes also adjustments to provisions; other income and other expense include fair value adjustments and divestment gains and losses on financial assets and legal related items; other income includes also gains from the divestment of products, curtailment gains and fair value adjustment on a contingent receivable | |||||||||||||||
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 3.4 billion to arrive at the core results before tax amounts to USD 548 million. The average tax rate on the adjustments is 16.3% since the full year core tax charge of 16.3% 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. |
53
CORE RESULTS – Reconciliation from IFRS results to core results – Innovative Medicines
Second quarter
(USD millions) | Q2 2023 IFRS results | Amortization of intangible assets1 | Impairments2 | Acquisition or divestment of businesses and related items3 | Other items4 | Q2 2023 Core results | Q2 2022 restated Core results5 | ||||||||
Gross profit | 8 401 | 869 | 310 | 9 | 9 589 | 9 057 | |||||||||
Operating income | 2 999 | 914 | 439 | -2 | 37 | 4 387 | 3 911 | ||||||||
The following are adjustments to arrive at core gross profit | |||||||||||||||
Cost of goods sold | -3 338 | 869 | 310 | 9 | -2 150 | -1 941 | |||||||||
The following are adjustments to arrive at core operating income | |||||||||||||||
Selling, general and administration | -2 955 | 3 | -2 952 | -2 959 | |||||||||||
Research and development | -2 304 | 45 | 144 | -14 | -2 129 | -2 055 | |||||||||
Other income | 108 | -38 | -3 | -53 | 14 | 63 | |||||||||
Other expense | -251 | 23 | 1 | 92 | -135 | -195 | |||||||||
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets; research and development includes the amortization of acquired rights for technologies | |||||||||||||||
2 Impairments: cost of goods sold, research and development, other income and other expense include net impairment charges related to intangible assets; other income and other expense includes also net impairment charges related to property, plant and equipment | |||||||||||||||
3 Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income includes a reversal of a provision for restructuring and integration costs | |||||||||||||||
4 Other items: cost of goods sold, selling, general and administration, research and development, other income and other expense include restructuring income and charges related to the initiative to implement a new streamlined organizational model, the Sandoz planned spin-off, the Group-wide rationalization of manufacturing sites and other net restructuring charges and related items; cost of goods sold and research and development also include contingent consideration adjustments; selling, general and administration includes adjustments to provisions; other income includes divestment income on financial assets; other expense includes fair value adjustments on financial assets and legal related items | |||||||||||||||
5 Restated to reflect the transfers of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities and the Coartem brand to the Innovative Medicines Division that was effective as of January 1, 2023 (see Note 9 in this Condensed Interim Financial Report). |
First half
(USD millions) | H1 2023 IFRS results | Amortization of intangible assets1 | Impairments2 | Acquisition or divestment of businesses and related items3 | Other items4 | H1 2023 Core results | H1 2022 restated Core results5 | ||||||||
Gross profit | 16 459 | 1 743 | 310 | 79 | 18 591 | 17 765 | |||||||||
Operating income | 5 674 | 1 941 | 905 | -45 | 8 475 | 7 583 | |||||||||
The following are adjustments to arrive at core gross profit | |||||||||||||||
Cost of goods sold | -6 328 | 1 743 | 310 | 79 | -4 196 | -3 947 | |||||||||
The following are adjustments to arrive at core operating income | |||||||||||||||
Selling, general and administration | -5 715 | 39 | -5 676 | -5 842 | |||||||||||
Research and development | -4 879 | 198 | 618 | -119 | -4 182 | -4 103 | |||||||||
Other income | 859 | -46 | -3 | -713 | 97 | 145 | |||||||||
Other expense | -1 050 | 23 | 3 | 669 | -355 | -382 | |||||||||
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets; research and development includes the amortization of acquired rights for technologies | |||||||||||||||
2 Impairments: cost of goods sold, research and development, other income and other expense include net impairment charges related to intangible assets; other income and other expense includes also net impairment charges related to property, plant and equipment | |||||||||||||||
3 Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income and other expense include reversals and charges of restructuring and integration costs | |||||||||||||||
4 Other items: cost of goods sold, selling, general and administration, research and development, other income and other expense include restructuring income and charges related to the initiative to implement a new streamlined organizational model, the Sandoz planned spin-off, the Group-wide rationalization of manufacturing sites and other net restructuring charges and related items; cost of goods sold and research and development also include contingent consideration adjustments; selling, general and administration includes adjustments to provisions; other income includes divestment income on financial assets, gains from the divestment of products, curtailment gains and legal related items; other expense includes fair value adjustments on financial assets and legal related items | |||||||||||||||
5 Restated to reflect the transfers of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities and the Coartem brand to the Innovative Medicines Division that was effective as of January 1, 2023 (see Note 9 in this Condensed Interim Financial Report). |
54
CORE RESULTS – Reconciliation from IFRS results to core results – Sandoz
Second quarter
(USD millions) | Q2 2023 IFRS results | Amortization of intangible assets1 | Impairments2 | Acquisition or divestment of businesses and related items | Other items3 | Q2 2023 Core results | Q2 2022 restated Core results4 | ||||||||
Gross profit | 1 192 | 57 | 16 | 1 265 | 1 187 | ||||||||||
Operating income | 212 | 57 | 1 | 159 | 429 | 451 | |||||||||
The following are adjustments to arrive at core gross profit | |||||||||||||||
Cost of goods sold | -1 250 | 57 | 16 | -1 177 | -1 131 | ||||||||||
The following are adjustments to arrive at core operating income | |||||||||||||||
Selling, general and administration | -594 | 9 | -585 | -510 | |||||||||||
Research and development | -222 | 2 | -220 | -196 | |||||||||||
Other income | 14 | -1 | -2 | 11 | 17 | ||||||||||
Other expense | -178 | 136 | -42 | -47 | |||||||||||
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets | |||||||||||||||
2 Impairments: research and development includes impairment charges related to an intangible asset; other income includes a reversal of impairment charges related to property, plant and equipment | |||||||||||||||
3 Other items: cost of goods sold, selling, general and administration, other income and other expense include charges related to the Sandoz planned spin-off, the Group-wide rationalization of manufacturing sites and other net restructuring charges and related items; other expense includes also legal-related items | |||||||||||||||
4 Restated to reflect the transfers of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities and the Coartem brand to the Innovative Medicines Division that was effective as of January 1, 2023 (see Note 9 in this Condensed Interim Financial Report). |
First half
(USD millions) | H1 2023 IFRS results | Amortization of intangible assets1 | Impairments2 | Acquisition or divestment of businesses and related items | Other items3 | H1 2023 Core results | H1 2022 restated Core results4 | ||||||||
Gross profit | 2 406 | 111 | 12 | 36 | 2 565 | 2 405 | |||||||||
Operating income | 531 | 111 | 13 | 278 | 933 | 964 | |||||||||
The following are adjustments to arrive at core gross profit | |||||||||||||||
Cost of goods sold | -2 517 | 111 | 12 | 36 | -2 358 | -2 267 | |||||||||
The following are adjustments to arrive at core operating income | |||||||||||||||
Selling, general and administration | -1 136 | 14 | -1 122 | -1 013 | |||||||||||
Research and development | -441 | 2 | -439 | -404 | |||||||||||
Other income | 24 | -1 | -4 | 19 | 59 | ||||||||||
Other expense | -322 | 232 | -90 | -83 | |||||||||||
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed 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 a reversal of impairment charges related to property, plant and equipment | |||||||||||||||
3 Other items: cost of goods sold, selling, general and administration, other income and other expense include charges related to the Sandoz planned spin-off, the Group-wide rationalization of manufacturing sites and other net restructuring charges and related items; cost of goods sold and selling, general and administration also include adjustments to provisions; other expense includes legal-related items | |||||||||||||||
4 Restated to reflect the transfers of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities and the Coartem brand to the Innovative Medicines Division that was effective as of January 1, 2023 (see Note 9 in this Condensed Interim Financial Report). |
55
CORE RESULTS – Reconciliation from IFRS results to core results – Corporate
Second quarter
(USD millions) | Q2 2023 IFRS results | Amortization of intangible assets | Impairments | Acquisition or divestment of businesses and related items1 | Other items2 | Q2 2023 Core results | Q2 2022 restated Core results3 | ||||||||
Gross profit | 2 | 2 | 3 | ||||||||||||
Operating loss | -291 | -56 | 199 | -148 | -92 | ||||||||||
The following are adjustments to arrive at core operating loss | |||||||||||||||
Selling, general and administration | -137 | 1 | -136 | -120 | |||||||||||
Other income | 25 | -56 | 51 | 20 | 47 | ||||||||||
Other expense | -181 | 147 | -34 | -22 | |||||||||||
1 Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income includes a favorable stamp duties tax settlement related to prior periods acquisitions | |||||||||||||||
2 Other items: selling, general and administration, other income and other expense include restructuring income and charges related to the initiative to implement a new simplified organizational model, the Sandoz planned spin-off and other net restructuring charges and related items; other income and other expense also include fair value adjustments and divestment gains and losses on financial assets; other income also includes a fair value adjustment on a contingent receivable | |||||||||||||||
3 Restated to reflect the transfers of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities and the Coartem brand to the Innovative Medicines Division that was effective as of January 1, 2023 (see Note 9 in this Condensed Interim Financial Report). | |||||||||||||||
First half
(USD millions) | H1 2023 IFRS results | Amortization of intangible assets | Impairments | Acquisition or divestment of businesses and related items1 | Other items2 | H1 2023 Core results | H1 2022 restated Core results3 | ||||||||
Gross profit | 7 | 7 | 37 | ||||||||||||
Operating loss | -429 | -60 | 162 | -327 | -194 | ||||||||||
The following are adjustments to arrive at core operating loss | |||||||||||||||
Selling, general and administration | -278 | 2 | -276 | -232 | |||||||||||
Other income | 234 | -60 | -136 | 38 | 50 | ||||||||||
Other expense | -392 | 296 | -96 | -49 | |||||||||||
1 Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income includes a favorable stamp duties tax settlement related to prior periods acquisitions and reversals of provisions for restructuring and integration costs | |||||||||||||||
2 Other items: selling, general and administration, other income and other expense include restructuring charges and income related to the initiative to implement a new streamlined organizational model, the Sandoz planned spin-off and other net restructuring charges and related items; other income and other expense also include fair value adjustments and divestment gains and losses on financial assets; other income also includes a fair value adjustment on a contingent receivable and curtailment gains | |||||||||||||||
3 Restated to reflect the transfers of the Sandoz Division’s biotechnology manufacturing services to other companies’ activities and the Coartem brand to the Innovative Medicines Division that was effective as of January 1, 2023 (see Note 9 in this Condensed Interim Financial Report). |
56
Free cash flow
The following table is a reconciliation of the three major categories of the IFRS consolidated statements of cash flows to free cash flow:
Second quarter
Q2 2023 | Q2 2022 | ||||||||||||
(USD millions) | IFRS cash flow | Adjustments | Free cash flow | IFRS cash flow | Adjustments1 | Revised Free cash flow1 | |||||||
Net cash flows from operating activities | 3 576 | 3 576 | 3 755 | 3 755 | |||||||||
Net cash flows used in investing activities 2 | -1 053 | 752 | -301 | -11 628 | 11 371 | -257 | |||||||
Net cash flows used in financing activities 3 | -3 637 | 3 637 | 0 | -2 302 | 2 302 | 0 | |||||||
Free cash flow 1 | 3 275 | 3 498 | |||||||||||
1 To aid in comparability, the prior year adjustments and free cash flow amounts have been revised to conform with the new free cash flow definition that was effective as of January 1, 2023. | |||||||||||||
2 With the exception of purchases of property, plant and equipment, all net cash flows from investing activities are excluded from the free cash flow. | |||||||||||||
3 Net cash flows used in financing activities are excluded from the free cash flow. | |||||||||||||
First half
H1 2023 | H1 2022 | ||||||||||||
(USD millions) | IFRS cash flow | Adjustments | Free cash flow | IFRS cash flow | Adjustments1 | Revised Free cash flow1 | |||||||
Net cash flows from operating activities | 6 533 | 6 533 | 5 404 | 5 404 | |||||||||
Net cash flows from/(used in) investing activities 2 | 9 568 | -10 106 | -538 | -2 263 | 1 749 | -514 | |||||||
Net cash flows used in financing activities 3 | -12 839 | 12 839 | 0 | -11 830 | 11 830 | 0 | |||||||
Free cash flow 1 | 5 995 | 4 890 | |||||||||||
1 To aid in comparability, the prior year adjustments and free cash flow amounts have been revised to conform with the new free cash flow definition that was effective as of January 1, 2023. | |||||||||||||
2 With the exception of purchases of property, plant and equipment, all net cash flows from investing activities are excluded from the free cash flow. | |||||||||||||
3 Net cash flows used in financing activities are excluded from the free cash flow. | |||||||||||||
57
The following table is a summary of the free cash flow:
Second quarter
(USD millions) | Q2 2023 | Q2 2022 | |||
Operating income | 2 920 | 2 228 | |||
Adjustments for non-cash items | |||||
Depreciation, amortization and impairments | 1 853 | 1 899 | |||
Change in provisions and other non-current liabilities | 73 | 547 | |||
Other | 354 | 82 | |||
Operating income adjusted for non-cash items | 5 200 | 4 756 | |||
Dividends received from associated companies and others | 1 | ||||
Interest received and change in other financial receipts | 65 | 21 | |||
Interest paid and change in other financial payments | -235 | -211 | |||
Income taxes paid | -1 030 | -606 | |||
Payments out of provisions and other net cash movements in non-current liabilities | -262 | -152 | |||
Change in inventories and trade receivables less trade payables | -674 | -596 | |||
Change in other net current assets and other operating cash flow items | 512 | 542 | |||
Net cash flows from operating activities | 3 576 | 3 755 | |||
Purchases of property, plant and equipment | -301 | -257 | |||
Free cash flow 1 | 3 275 | 3 498 | |||
1 To aid in comparability, the prior year free cash flow amounts have been revised to conform with the new free cash flow definition that was effective as of January 1, 2023 |
First half
(USD millions) | H1 2023 | H1 2022 | |||
Operating income | 5 776 | 5 080 | |||
Adjustments for non-cash items | |||||
Depreciation, amortization and impairments | 3 896 | 3 406 | |||
Change in provisions and other non-current liabilities | 585 | 635 | |||
Other | 244 | 207 | |||
Operating income adjusted for non-cash items | 10 501 | 9 328 | |||
Dividends received from associated companies and others | 5 | 1 | |||
Interest received and other financial receipts | 401 | 38 | |||
Interest paid and other financial payments | -364 | -351 | |||
Income taxes paid | -1 378 | -1 239 | |||
Payments out of provisions and other net cash movements in non-current liabilities | -966 | -308 | |||
Change in inventories and trade receivables less trade payables | -2 057 | -1 660 | |||
Change in other net current assets and other operating cash flow items | 391 | -405 | |||
Net cash flows from operating activities | 6 533 | 5 404 | |||
Purchases of property, plant and equipment | -538 | -514 | |||
Free cash flow 1 | 5 995 | 4 890 | |||
1 To aid in comparability, the prior year free cash flow amounts have been revised to conform with the new free cash flow definition that was effective as of January 1, 2023 | |||||
58
Additional information
Net debt
Condensed consolidated changes in net debt
Second quarter
(USD millions) | Q2 2023 | Q2 2022 | |||
Net change in cash and cash equivalents | -1 115 | -10 227 | |||
Change in marketable securities, commodities, time deposits, financial debts and derivatives financial instruments | 845 | 11 386 | |||
Change in net debt | -270 | 1 159 | |||
Net debt at April 1 | -15 104 | -10 678 | |||
Net debt at June 30 | -15 374 | -9 519 | |||
First half
(USD millions) | H1 2023 | H1 2022 | |||
Net change in cash and cash equivalents | 3 368 | -8 782 | |||
Change in marketable securities, commodities, time deposits, financial debts and derivatives financial instruments | -11 497 | 131 | |||
Change in net debt | -8 129 | -8 651 | |||
Net debt at January 1 | -7 245 | -868 | |||
Net debt at June 30 | -15 374 | -9 519 | |||
Components of net debt
(USD millions) | Jun 30, 2023 | Dec 31, 2022 | Jun 30, 2022 | ||||
Non-current financial debts | -18 259 | -20 244 | -22 232 | ||||
Current financial debts and derivative financial instruments | -8 289 | -5 931 | -7 045 | ||||
Total financial debts | -26 548 | -26 175 | -29 277 | ||||
Less liquidity | |||||||
Cash and cash equivalents | 10 885 | 7 517 | 3 625 | ||||
Marketable securities, commodities, time deposits and derivative financial instruments | 289 | 11 413 | 16 133 | ||||
Total liquidity | 11 174 | 18 930 | 19 758 | ||||
Net debt at end of period | -15 374 | -7 245 | -9 519 | ||||
Share information
Jun 30, 2023 | Jun 30, 2022 | ||||
Number of shares outstanding | 2 068 263 550 | 2 182 788 588 | |||
Registered share price (CHF) | 90.00 | 80.85 | |||
ADR price (USD) | 100.91 | 84.53 | |||
Market capitalization (USD billions) 1 | 207.0 | 184.6 | |||
Market capitalization (CHF billions) 1 | 186.1 | 176.5 | |||
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. |
59
Effects of currency fluctuations
Principal currency translation rates
(USD per unit) | Average rates Q2 2023 | Average rates Q2 2022 | Average rates H1 2023 | Average rates H1 2022 | Period-end rates Jun 30, 2023 | Period-end rates Jun 30, 2022 | |||||||
1 CHF | 1.113 | 1.037 | 1.097 | 1.060 | 1.112 | 1.046 | |||||||
1 CNY | 0.143 | 0.151 | 0.144 | 0.154 | 0.138 | 0.149 | |||||||
1 EUR | 1.089 | 1.065 | 1.081 | 1.094 | 1.086 | 1.044 | |||||||
1 GBP | 1.252 | 1.257 | 1.233 | 1.299 | 1.262 | 1.215 | |||||||
100 JPY | 0.729 | 0.771 | 0.742 | 0.816 | 0.692 | 0.733 | |||||||
100 RUB | 1.230 | 1.509 | 1.300 | 1.336 | 1.133 | 1.850 | |||||||
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.
Second quarter
Change in USD % Q2 2023 | Change in constant currencies % Q2 2023 | Percentage point currency impact Q2 2023 | Change in USD % Q2 2022 | Change in constant currencies % Q2 2022 | Percentage point currency impact Q2 2022 | ||||||||
Total Group | |||||||||||||
Net sales to third parties | 7 | 9 | -2 | -1 | 5 | -6 | |||||||
Operating income | 31 | 50 | -19 | -36 | -30 | -6 | |||||||
Net income | 37 | 54 | -17 | -41 | -34 | -7 | |||||||
Basic earnings per share (USD) | 44 | 62 | -18 | -40 | -33 | -7 | |||||||
Core operating income | 9 | 17 | -8 | -2 | 5 | -7 | |||||||
Core net income | 11 | 19 | -8 | -8 | -1 | -7 | |||||||
Core basic earnings per share (USD) | 17 | 25 | -8 | -6 | 1 | -7 | |||||||
Innovative Medicines | |||||||||||||
Net sales to third parties | 7 | 9 | -2 | -1 | 5 | -6 | |||||||
Operating income | 36 | 52 | -16 | -31 | -25 | -6 | |||||||
Core operating income | 12 | 20 | -8 | -1 | 6 | -7 | |||||||
Sandoz | |||||||||||||
Net sales to third parties | 5 | 8 | -3 | -3 | 5 | -8 | |||||||
Operating income | -41 | -27 | -14 | -18 | -14 | -4 | |||||||
Core operating income | -5 | 6 | -11 | -9 | -4 | -5 | |||||||
Corporate | |||||||||||||
Operating loss | 13 | 16 | -3 | -112 | -125 | 13 | |||||||
Core operating loss | -61 | -63 | 2 | 14 | 6 | 8 | |||||||
60
First half
Change in USD % H1 2023 | Change in constant currencies % H1 2023 | Percentage point currency impact H1 2023 | Change in USD % H1 2022 | Change in constant currencies % H1 2022 | Percentage point currency impact H1 2022 | ||||||||
Total Group | |||||||||||||
Net sales to third parties | 5 | 8 | -3 | 0 | 5 | -5 | |||||||
Operating income | 14 | 28 | -14 | -14 | -7 | -7 | |||||||
Net income | 18 | 32 | -14 | -21 | -14 | -7 | |||||||
Basic earnings per share (USD) | 24 | 39 | -15 | -20 | -12 | -8 | |||||||
Core operating income | 9 | 16 | -7 | 1 | 7 | -6 | |||||||
Core net income | 11 | 19 | -8 | -6 | 0 | -6 | |||||||
Core basic earnings per share (USD) | 17 | 25 | -8 | -5 | 2 | -7 | |||||||
Innovative Medicines | |||||||||||||
Net sales to third parties | 5 | 8 | -3 | 0 | 5 | -5 | |||||||
Operating income | 17 | 30 | -13 | -12 | -5 | -7 | |||||||
Core operating income | 12 | 19 | -7 | -1 | 6 | -7 | |||||||
Sandoz | |||||||||||||
Net sales to third parties | 4 | 8 | -4 | -1 | 6 | -7 | |||||||
Operating income | -29 | -19 | -10 | 3 | 8 | -5 | |||||||
Core operating income | -3 | 5 | -8 | 5 | 10 | -5 | |||||||
Corporate | |||||||||||||
Operating loss | 15 | 17 | -2 | -72 | -81 | 9 | |||||||
Core operating loss | -69 | -71 | 2 | 23 | 18 | 5 | |||||||
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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 “anticipated,” “continue,” “remain,” “growth,” “confidence,” “upcoming,” “expect,” “ongoing,” “outlook,” “planned” “focus,” “pipeline,” “potential,” “will,” “guidance,” “continuing,” “estimated,” “launch,” “to deliver,” “transformation,” “transforming,” “address,” “growing,” “accelerate,” “remains,” “scaling,” “expected,” “driven,” “long-term,” “innovation,” “transformative,” “priority,” “can,” “to develop,” “to experience,” “look forward,” “momentum,” 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 potential future, pending or announced transactions, including the acquisitions of Chinook Therapeutics or DTx Pharma, or our divestiture of ‘front of eye’ ophthalmology assets; or regarding potential future sales or earnings of the Group or any of its divisions; or regarding discussions of strategy, priorities, plans, expectations or intentions, including our transforming into a “pure-play” Innovative Medicines business; 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 planned spin-off of Sandoz; or regarding the new share buyback; or regarding the impact of the decision of the US District Court for the District of Delaware on the validity of our patent covering Entresto and combinations of sacubitril and valsartan. 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. There can be no guarantee that the investigational or approved products described in this press release will be submitted or approved for sale or for any additional indications or labeling in any market, or at any particular time. Nor can there be any guarantee that such products will be commercially successful in the future. Neither can there be any guarantee expected benefits or synergies from the transactions described in this press release will be achieved in the expected timeframe, or at all. 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 a partial or complete failure of the return to normal global healthcare systems including prescription dynamics; 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 benefits and opportunities expected from our planned spin-off of Sandoz 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. Chinook Therapeutics and Chinook are registered trademarks of Chinook Therapeutics, Inc. DTx Pharma is a registered trademark of DTx Pharma, Inc. BAUSCH + LOMB is a registered trademark of Bausch & Lomb Incorporated.
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About Novartis
Novartis is reimagining medicine to improve and extend people’s lives. We deliver high-value medicines that alleviate society’s greatest disease burdens through technology leadership in R&D and novel access approaches. In our quest to find new medicines, we consistently rank among the world’s top companies investing in research and development. About 103,000 people of more than 140 nationalities work together to bring Novartis products to nearly 800 million people 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 8:00 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.
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
September 15, 2023
Extraordinary General Meeting (related to Sandoz Spin-off)
October 24, 2023
Third quarter & Nine months 2023 results
November 28, 2023
R&D Day
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