·	Q1 2020 net sales from continuing operations1 grew 13% (cc2, +11% USD) with double digit growth (cc) in Innovative Medicines and Sandoz:

o	Key growth drivers include Entresto USD 569 million (+62% cc), Zolgensma USD 170 million, Cosentyx USD 930 million (+19% cc), Kisqali USD 161 million (+82% cc) and Piqray USD 74 million

o	Biopharmaceuticals grew 31% (cc) to USD 450 million, with strong growth in Europe

o	Excluding COVID-19 related forward purchases, we estimate3 sales growth to be approximately 9% (cc)

·	Core2 operating income grew 34% (cc, +28% USD) mainly driven by higher sales, benefiting from COVID-19 forward purchasing and gross margin improvement, partly offset by launch investments

o	Excluding COVID-19 related forward purchases and lower spending, we estimate3 core operating income growth to be approximately 22% (cc)

·	Impacts of COVID-19:

o	Our operations and product demand remain very stable and strong. Mitigating actions helped to ensure minimal disruption to supply chain and ability to meet forward purchasing demand

o	We estimate3 that forward purchasing had a favorable impact of approximately USD 0.4 billion on sales. Core operating income benefited by approximately3 USD 0.4 billion from forward purchasing and lower spending. These impacts3 are expected to reverse in the remainder of 2020

o	Currently manageable disruption to clinical trials and minimal disruption to ongoing regulatory submissions

·	Net income grew 24% (cc, +16% USD), including higher legal provisions and taxes

·	Free cash flow2 increased 8% to USD 2.0 billion driven by higher cash flows from operations

·	Sandoz US generic oral solids and dermatology businesses will be retained by Novartis, after mutual agreement with Aurobindo to terminate the transaction

·	2020 guidance4 for continuing operations confirmed at this time - Net sales expected to grow mid to high-single digit (cc); core operating income expected to grow high-single to low double digit (cc)

Basel, April 28, 2020 — Commenting on the quarter, Vas Narasimhan, CEO of Novartis, said:

“We continue to deliver our medicines to patients and advance our innovative pipeline as reflected in our strong operational performance in Q1. While there are many uncertainties for the coming year, we are maintaining our full year outlook at this time and will continue to play our part to overcome the pandemic. Our response to the COVID-19 crisis demonstrates Novartis’ relentless commitment to our associates, patients, and the global community. For our associates we’ve committed to no COVID-19 related job losses and a full range of support programs. To support the global public health response, we are engaged in multiple collaborative R&D efforts, large scale clinical trials and donations to support local communities in currently over 60 countries.”  

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The commentary below focuses on continuing operations including the businesses of Innovative Medicines and Sandoz, as well as the continuing Corporate functions. We also provide information on discontinued operations.

Continuing operations first quarter

Net sales

Net sales were USD 12.3 billion (+11%, +13% cc) in the first quarter driven by volume growth of 17 percentage points, mainly from Entresto, Zolgensma, Cosentyx and Promacta/Revolade. Volume growth also benefited from COVID-19 related forward purchasing. Strong volume growth was partly offset by price erosion of 3 percentage points and negative impact from generic competition of 1 percentage point. Excluding COVID-19 related forward purchases, we estimate sales growth would have been approximately 9% (cc).

Corporate income and expense, net

Corporate income and expense, which includes the cost of Group management and central services, amounted to an income of USD 34 million in the first quarter compared to an expense of USD 140 million in the prior year, mainly driven by a royalty settlement gain related to intellectual property rights.

Core operating income was USD 4.2 billion (+28%, +34% cc) mainly driven by higher sales and gross margin, partly offset by launch investments. Core operating income margin was 34.0% of net sales, increasing by 4.7 percentage points (+5.4 percentage points cc). Excluding COVID-19 related forward purchases and lower spending, we estimate core operating income growth would have been approximately 22% (cc) and core operating income margin would have been approximately 32% of net sales.

Income from associated companies

Income from associated companies increased from USD 80 million in prior year to USD 123 million in the first quarter of 2020 mainly due to the increase in the share of income from Roche Holding AG. The estimated first quarter income for Roche Holding AG, net of amortization, was USD 188 million compared to USD 166 million in prior year, and was partly offset by the negative prior year true up of USD 64 million in the first quarter of 2020, compared to a negative true up of USD 129 million in the first quarter of 2019. In addition, a USD 43 million revaluation of the deferred tax liability, recognized upon the initial accounting for the Roche investment, was recorded in the first quarter of 2019, following a change in February 2019, in the enacted tax rate of the Swiss Canton Basel-Stadt, effective January 1, 2019.

Core income from associated companies increased to USD 308 million from USD 278 million in prior year mainly due to a higher estimated core income contribution from Roche Holding AG for the current period. The favorable prior year core income true up from Roche of USD 38 million was broadly in line with the true up recognized in the first quarter of 2019.

Interest expense and other financial income/expense

Interest expense amounted to USD 239 million broadly in line with the prior year interest expense of USD 226 million. Other financial income and expense amounted to a loss of USD 7 million compared to a gain of USD 44 million in prior year due to higher currency losses and lower interest income.

Taxes

The tax rate for continuing operations in the first quarter was 17.1% compared to 12.7% in the prior year.

 

Excluding the impact of non-deductible legal settlement expenses in the first quarter and the impact of the Swiss tax reform in the prior year, the first quarter tax rates would have been 15.7% compared to 15.4% in the prior year. The increase from prior year was mainly the result of a change in profit mix.

The core tax rate for continuing operations was 16.0% compared to 16.1% in prior year.

Net income was USD 2.2 billion (+16%, +24% cc) mainly driven by higher operating income, partly offset by higher taxes. EPS was USD 0.96 (+19%, +27% cc), growing faster than net income benefiting from lower weighted average number of shares outstanding.

Core net income was USD 3.5 billion (+26%, +31% cc) driven by growth in core operating income, partly offset by higher financial expenses. Core EPS was USD 1.56 (+29%, +34% cc), growing faster than core net income benefiting from lower weighted average number of shares outstanding.

Free cash flow from continuing operations amounted to USD 2.0 billion (+8%) compared to USD 1.9 billion in the prior year quarter. The increase was mainly driven by higher cash flows from operating activities.

Discontinued operations

Discontinued operations include the business of Alcon and certain Corporate costs directly attributable to Alcon up to the spin-off date. As the Alcon spin-off was completed on April 9, 2019, the first quarter of the prior year includes three months of operating results of the divested business.

In the first quarter of 2020, there were no activities related to discontinued operations. In the first quarter 2019, discontinued operations net sales were USD 1.8 billion, operating income amounted to USD 71 million and net loss from discontinued operations was USD 101 million. For further details see Note 2 “Distribution of Alcon Inc. to Novartis AG shareholders”, Note 3 “Significant transactions – Completion of the spin-off of the Alcon business through a dividend in kind distribution to Novartis AG shareholders” and Note 10 “Discontinued operations”.      

Total Group first quarter

For the total Group, net income amounted to USD 2.2 billion compared to USD 1.8 billion in prior year, and basic earnings per share was USD 0.96 compared to USD 0.77 in prior year. Cash flow from operating activities for the total Group amounted to USD 2.5 billion and free cash flow to USD 2.0 billion.

First quarter

Q1 results were positively impacted by COVID-19 related forward purchasing. Healthcare professionals wrote prescriptions for longer periods, to minimize the need for patients to visit physicians and pharmacies. There was some forward purchasing at the wholesaler and patient level, to anticipate potential shortages. We will closely monitor the impact of these trends on future quarters, and expect the positive effects to reverse over the course of the year. Excluding COVID-19 related forward purchases and lower spending, we estimate¹ net sales growth would have been approximately 10% (cc) and core operating income growth would have been approximately 17% (cc) for the Innovative Medicines division.

Net sales were USD 9.8 billion (+11%, +13% cc). Pharmaceuticals BU sales grew 12% (+14% cc), driven by continuing momentum on Entresto and Cosentyx and the launch uptake of Zolgensma. Oncology BU grew 10% (+12% cc) driven by continuing momentum on Promacta/Revolade, Tafinlar + Mekinist and Kisqali as well as the launch uptake of Piqray. Volume contributed 18 percentage points to sales growth. Generic competition had a negative impact of 2 percentage points, mainly driven by Afinitor, Exjade, Travatan and Exforge, and net pricing had a negative impact of 3 percentage points.

Regionally, the US (USD 3.5 billion, +18%) delivered a strong performance driven by Zolgensma, Cosentyx, Entresto and Xiidra. Europe sales (USD 3.4 billion, +9%, +12% cc) benefited from continued strong performance of Entresto, Jakavi, Tafinlar + Mekinist, Kisqali and Ilaris. Japan sales were USD 0.6 billion (+10%, +8% cc). Emerging Growth Markets sales grew (+8%, +14% cc), led by strong double-digit growth in China, including the launches of Entresto and Cosentyx.

Pharmaceuticals BU sales were USD 6.1 billion (+12%, +14% cc). Growth was mainly driven by Entresto (USD 569 million, +59%, +62% cc), Zolgensma (USD 170 million), Cosentyx (USD 930 million, +18%, +19% cc) and Xiidra (USD 90 million).

Oncology BU sales were USD 3.6 billion (+10%, +12% cc). Growth was mainly driven by Promacta/Revolade (USD 403 million, +31%, +33% cc), Tafinlar + Mekinist (USD 366 million, +23%, +26% cc), Piqray (USD 74 million) and Kisqali (USD 161 million, +77%, +82% cc).

Operating income

Operating income was USD 2.8 billion (+31%, +38% cc) mainly driven by continued strong sales growth, partly offset by launch investments. Operating income margin was 28.2% of net sales increasing 4.2 percentage points (5.1 percentage points in cc).

Core adjustments were USD 0.9 billion, mainly due to USD 0.7 billion for amortization. Prior year core adjustments were USD 0.8 billion.

Core operating income was USD 3.6 billion (+23%, +28% cc) mainly driven by continued strong sales growth, partly offset by launch investments. Core operating income margin was 37.0% of net sales, increasing 3.7 percentage points (+4.3 percentage points cc). Core gross margin increased by 1.0 percentage point (cc) driven by productivity and favorable sales mix. Core R&D expenses as a percentage of net sales margin decreased by 1.7 percentage points (cc) mainly driven by higher net sales, productivity and portfolio prioritization. Core SG&A expenses as a percentage of net sales decreased by 1.3 percentage points (cc) benefiting from COVID-19 related net sales and spending impacts. Core other income and expense as a percentage of net sales decreased by 0.3 percentage points.

¹ We provide these management estimates based on the best data available to Novartis, as we believe this information is helpful to our investors to better understand Q1 underlying business performance

 

  ¹ Majority of sales for Mekinist and Tafinlar are combination, but both can be used as a monotherapy

 nm = not meaningful

Tasigna (USD 487 million, +12%, +15% cc) grew in all regions, with solid uptake in China.

Promacta/Revolade (USD 403 million, +31%, +33% cc) continued to grow at a double-digit rate in all regions driven by increased use in chronic immune thrombocytopenia (ITP) and further uptake as first-line treatment for severe aplastic anemia (SAA) in the US.

Sandostatin (USD 374 million, -5%, -3% cc) sales declined due to competitive pressure in the US, Europe and Japan. The brand was also impacted by generic entry in Europe.

Tafinlar + Mekinist (USD 366 million, +23%, +26% cc), the worldwide leader in BRAF/MEK-inhibition, continued to show double-digit growth driven by demand in adjuvant melanoma as well as NSCLC.

Gleevec/Glivec (USD 329 million, +7%, +9% cc) sales benefited from a favorable one-time revenue deduction adjustment in the US, partly offset by increased generic competition.

Jakavi (USD 318 million, +23%, +27% cc) continued double-digit growth across all regions driven by demand in the myelofibrosis, polycythemia vera indications.

Afinitor/Votubia (USD 296 million, -21%, -20% cc) declined due to generic competition in the US, Europe and Emerging Growth Markets. 

Exjade/Jadenu (USD 172 million, -28%, -26% cc) declined mainly due to pressure from generic competition in the US and in other regions.

Votrient (USD 166 million, -11%, -9% cc) declined mainly due to increased competition in the US and Europe.

Kisqali (USD 161 million, +77%, +82% cc) continued strong double-digit growth driven by demand in the US, very strong uptake in Europe and other regions benefiting from the impact of positive overall survival data from two pivotal Phase III trials (MONALEESA-7 and MONALEESA-3).

Lutathera (USD 112 million, +6%, +6% cc) launches in Europe contributed to the continued growth of the brand, with over 340 total centers now actively treating patients. Sales from all AAA brands (including Lutathera and radiopharmaceutical diagnostic products) were USD 172 million.

Kymriah (USD 93 million, +107%, +109% cc) grew strongly in US and Europe. Over 230 qualified treatment centers and more than 20 countries have coverage for at least one indication.  The FDA approved expanded manufacturing capacity for Kymriah in the Morris Plains site and granted Regenerative Medicine Advanced Therapy designation in follicular lymphoma.

Piqray (USD 74 million) continued strong launch uptake in the US, benefiting from further uptake in PIK3CA mutation testing. Piqray is the first and only therapy specifically for the approximately 40% of

 

HR+/HER2- advanced breast cancer patients who have a PIK3CA mutation, which is associated with poor prognosis.  

Adakveo (USD 15 million) US launch is progressing well, with high brand awareness among hematologists. Payer coverage and reimbursement expanding, including Medicaid coverage policies issued in 12 states and by many national and regional private payers; C-code was issued on April 1, and a permanent J-code is on track to be issued July 1. Adakveo was approved by the FDA following priority review as the first and only monthly therapy to reduce the frequency of pain crises, or vaso-occlusive crises (VOCs), in adults and pediatric patients aged 16 years and older with sickle cell disease.

nm = not meaningful

Lucentis (USD 487 million, -9%, -6% cc) declined versus prior year due to the negative impact of the COVID-19 pandemic, which has significantly disrupted ophthalmology practices and limited patients access to treatment of retinal diseases.

Xiidra (USD 90 million) is the only prescription eye drop solution marketed in the US and Canada to treat the signs and symptoms of dry eye disease. It is dosed twice per day, approximately 12 hours apart, in each eye. Xiidra is approved in multiple markets including the US, Canada and Australia. Novartis acquired Xiidra from Takeda and began recording sales as of July 1, 2019.

Beovu (USD 68 million) was launched in the US in October 2019, and received market authorization in all the remaining top 9 markets (EU, UK, CH, JP, CA) in Q1 2020. Post marketing cases reported as severe vision loss, retinal artery occlusion and/or vasculitis had an unfavorable impact on US sales. In early April, Novartis completed its review of post-marketing safety case reports. Based on internal and Safety Review Committee assessment, Novartis concluded that there is a confirmed safety signal of rare adverse events of “retinal vasculitis and/or retinal vascular occlusion that may result in severe vision loss. Typically these events occur in the presence of intraocular inflammation.” Novartis has been in dialogue with regulatory authorities and based on this review, Novartis has initiated a safety information update to Beovu prescribing information worldwide. Novartis sponsored studies will be amended so that protocols, informed consent forms, and investigator brochures contain the new safety information and patients re-consented.  Novartis is committed to continuing to collaborate with the scientific and broader retina community to better understand the root causes and potential risk factors associated with these rare adverse events. Novartis continues to believe Beovu represents an important treatment option for patients with wet AMD, with an overall favorable benefit-risk profile. 

Other ophthalmology brands declined mainly due to generic impacts, primarily for Travatan.

 

Xolair sales for all indications are reported in the Respiratory franchise

Cosentyx (USD 930 million, +18%, +19% cc) continued to grow strongly across indications and regions. In the US sales grew 22% vs. Q1 2019 with broad first line access in all three indications (psoriasis, psoriatic arthritis and ankylosing spondylitis). In January, Novartis announced FDA approval for a label update to include the option for up-titration to a 300mg dose for adults with active ankylosing spondylitis.

 

Ilaris (USD 213 million, +41%, +44% cc) sales were driven by strong double-digit volume growth, particularly in Europe and the US.

nm = not meaningful

Gilenya (USD 772 million, +1%, +2% cc) was broadly in line with prior year. Novartis is in US ANDA litigation with generic manufacturers. In parallel, an appeal against a USPTO decision upholding the dosage regimen patent in IPR proceedings is ongoing.

Zolgensma (USD 170 million) US launch continues to progress well. Policies are in place covering ~97% of commercial patients and >50% of Medicaid patients. Currently, 25 states representing 42% of newborns are screening for SMA in the US. Novartis was notified by the FDA it has completed its review of the Form 483 response issued on August 2, 2019, and has classified the inspection as Voluntary Action Indicated, and determined that no further enforcement action is necessary. In March 2020, the CHMP recommended Zolgensma for conditional approval in Europe, and the MHLW approved Zolgensma in Japan.

Aimovig (USD 36 million, +100%, +108% cc) is the most prescribed anti-CGRP worldwide, with more than 400,000 patients prescribed worldwide in the post-trial setting. It has now been launched for the preventive treatment of migraine in 38 countries and additional launches are underway. Aimovig is co-commercialized with Amgen in the US, where Amgen records sales and Novartis has exclusive rights in all ex-US territories excluding Japan. The collaboration continues during the litigation between the companies and will remain in force until and unless a final court decision terminates the agreements.

Mayzent (USD 30 million) sales increased driven enhanced education of the EXPAND trial data. Mayzent was approved and launched in the US in 2019 and in Germany, the UK and Austria in February 2020, for the treatment of adult patients with secondary progressive multiple sclerosis (SPMS) with active disease. Mayzent is the first and only oral treatment studied and proven to slow disability progression in a broad range of SPMS patients.

Entresto (USD 569 million, +59%, +62% cc) continued demand-driven growth momentum across geographies. Entresto had a strong start of the year in the US, with new weekly prescriptions reaching an all-time-high at >4,500 and strong TRx growth (+46%), as well as in China following NRDL listing. A co-promotion agreement with Otsuka Pharmaceuticals was announced in Japan, where approval and launch are expected in H2 2020. Novartis is in US ANDA litigation with generic manufacturers.

Xolair sales for all indications are reported in the Respiratory franchise

Xolair (USD 307 million, +9%, +13% cc) continued to grow in both indications Severe Allergic Asthma (SAA) and Chronic Spontaneous Urticaria (CSU). We co-promote Xolair with Genentech in the US and share a portion of operating income, but we do not record any US sales.

 

 

Ultibro Group (USD 160 million, +2%, +5% cc) sales grew despite competitive pressures in all regions. Ultibro Group is consisting of inhaled COPD therapies Ultibro Breezhaler, Seebri Breezhaler and Onbrez Breezhaler.

Galvus Group (USD 338 million, +7%, +10% cc) grew driven by timing of shipments related to our co-promotion in Japan and continued uptake in China.

Diovan Group (USD 274 million, +5%, +9% cc) grew in Emerging Growth Markets, partially offset by declines in Europe and Japan.

Exforge Group (USD 258 million, -3%, 0% cc) was broadly in line with prior year as growth in Emerging Growth Markets was offset by generic competition in other regions.

Zortress/Certican (USD 127 million, +9%, +12% cc) grew in Europe and Japan, partly offset by a decline in Emerging Growth Markets. There is generic competition in the US since March 2020.

Neoral/Sandimmun(e) (USD 101 million, -2%, +1% cc) was broadly in line with prior year despite generic competition and mandatory price reductions.

Voltaren/Cataflam (USD 92 million, -19%, -17% cc) declined mainly due to generic competition.

Sandoz Transactions

The Sandoz US generic oral solids and dermatology businesses will be retained by Novartis, after mutual agreement with Aurobindo to terminate the transaction. This decision was taken as approval from the U.S. Federal Trade Commission for the transaction was not obtained within the agreed timelines. Sandoz will continue to operate its oral solids and dermatology business as part of the Sandoz US business. The results of this business are included in continuing operations.

First quarter

Q1 results were positively impacted by COVID-19 related forward purchasing. Healthcare professionals wrote prescriptions for longer periods, to minimize the need for patients to visit physicians and pharmacies. There was some forward purchasing at the wholesaler and patient level, to anticipate potential shortages. We will closely monitor the impact of these trends on future quarters, and expect the positive effects to reverse over the course of the year. Excluding COVID-19 related forward purchases and lower spending, we estimate¹ net sales growth would have been approximately 7% (cc) and core operating income growth would have been approximately 39% (cc) for the Sandoz division.

Net sales

Net sales were USD 2.5 billion (+9%, +11% cc), driven by volume growth of 15 percentage points, partly offset by price erosion of 4 percentage points. Excluding the US, net sales grew strongly (+13%, +17% cc).

Sales in Europe were USD 1.4 billion (+15%, +19% cc) with strong growth in retail and biopharmaceuticals. Sales in the US were USD 570 million declining 3%. Sales in Asia / Africa / Australasia were USD 334 million (+5%, +7% cc) including contribution from the Aspen Japan acquisition. Sales in Canada and Latin America were USD 196 million (+11%, +19% cc).

Global sales of Biopharmaceuticals (biosimilars, biopharmaceutical contract manufacturing and Glatopa) grew to USD 450 million (+28%, +31% cc), driven by continued strong double-digit growth in Europe from Hyrimoz (adalimumab), Rixathon (rituximab) and Erelzi (etanercept) as well as good performance of Omnitrope (somatropin) including in the US. Launch roll-outs in Asia / Africa / Australasia / Canada and Latin America also contributed to growth.

Retail sales were USD 2.0 billion (+6%, +9% cc), growing across all regions, except the US. Europe delivered strong performance with higher volumes and lower price erosion. Total Anti-Infectives franchise sales were USD 331 million (+1%, +3% cc), including finished dosage forms sold under the Sandoz name (USD 222 million, +9%, +12% cc) and Anti-Infectives sold to third parties for sale under their own name (USD 109 million, -13%, -11% cc), which was impacted by a planned contract discontinuation.

Operating income

Operating loss was USD 45 million impacted by USD 0.4 billion legal provisions and the cumulative depreciation and amortization from the termination of the planned Aurobindo transaction. Operating income margin was -1.8% of net sales, declining 13.5 percentage points (-12.4 percentage points cc).

Core adjustments were USD 0.7 billion, including USD 0.2 billion of amortization and USD 0.4 billion legal provisions. Prior year core adjustments were USD 0.2 billion.

Core operating income was USD 673 million (+46%, +53% cc) mainly driven by sales growth, continued gross margin improvements and cost discipline. Core operating income margin was 26.6% of net sales, increasing 6.8 percentage points (7.3 percentage points cc). Core gross margin increased by 2.5 percentage points (cc), driven by favorable product and geographic mix along with ongoing productivity improvements and lower price erosion. Core R&D expenses decreased by 0.8 percentage points (cc) and Core SG&A expenses decreased by 3.5 percentage points (cc), driven by sales leverage. Core other income and expense decreased by 0.5 percentage points (cc) mainly from lower net legal settlement expenses.

 

¹ We provide these management estimates based on the best data available to Novartis, as we believe this information is helpful to our investors to better understand Q1 underlying business performance

GROUP CASH FLOW AND BALANCE SHEET

Cash Flow

First quarter

Net cash flows from operating activities from continuing operations amounted to USD 2.5 billion, compared to USD 2.3 billion in the prior year quarter. This increase was driven by higher net income adjusted for non-cash items and other adjustments, including divestment gains, partly offset by unfavorable working capital and higher provision payments including legal settlements.

Net cash outflows from investing activities from continuing operations amounted to USD 10.1 billion, compared to net cash inflows of USD 1.8 billion in the prior year quarter.

 

The current year quarter cash outflows were mainly driven by the USD 9.9 billion used for the acquisitions and divestments of businesses, net (including the acquisition of The Medicines Company for USD 9.5 billion, net of cash acquired USD 0.1 billion, and the acquisition of Japanese business of Aspen Global Incorporated for USD 0.3 billion). Other investing activities cash outflows were USD 0.6 billion for the purchase of property, plant and equipment, intangible assets, financial assets and other non-current assets. These were partly offset by cash inflows of USD 0.4 billion mainly from the sale of financial assets (including the USD 0.2 billion proceeds from the sale of Alcon Inc. shares), of intangible assets and from the net proceeds from sales and purchases of marketable securities and commodities.

In the prior year quarter, net cash inflows of USD 1.8 billion from investing activities from continuing operations were mainly related to net cash inflows of USD 2.3 billion from the sale of marketable securities and commodities, and of USD 0.3 billion in proceeds from the sale of property, plant and equipment, intangible assets and financial assets. These were partly offset by cash outflows of USD 0.7 billion for the purchase of property, plant and equipment, intangible assets and financial assets. Cash outflows for acquisitions and divestments of business, net, amounted to USD 0.1 billion.

Net cash flows used in investing activities from discontinued operations in the first quarter are not material compared to USD 0.4 billion in the prior year quarter. The prior year quarter included mainly the cash outflow of USD 0.3 billion for the acquisition of PowerVision, Inc.

Net cash inflows from financing activities from continuing operations amounted to USD 1.0 billion, compared to net cash outflows of USD 10.3 billion in the prior year quarter.

The current year quarter includes net cash inflows of USD 0.7 billion from net treasury share transactions and of USD 7.6 billion from current and non-current financial debt; consisting of USD 4.9 billion from issuance of bonds denominated in US dollars (notional amount of USD 5.0 billion), USD 3.7 billion from the net increase in current financial debts and the repayment of a US dollar bond of USD 1.0 billion at maturity. These inflows were partially offset by cash outflows of USD 7.0 billion for the dividend payment and USD 0.3 billion for the net payments for lease liabilities and other financing cash flows.

In the prior year quarter, net cash outflows of USD 10.3 billion from financing activities from continuing operations mainly included the cash outflows of USD 6.6 billion for the dividend payment, the repayment of a US dollar bond of USD 3.0 billion and for the net decrease of current financial debt of USD 0.1 billion. Payments for lease liabilities, net, and other financing net cash flows resulted in a net cash outflow of USD 0.5 billion.

Net cash outflows used for financing activities from discontinued operations amounted to USD 13 million for Alcon transaction costs payments, compared to net cash inflows of USD 0.6 billion in the prior year quarter, including USD 0.3 billion from Alcon borrowings, partly offset by USD 51 million in payments for Alcon transaction costs.

Free cash flow from continuing operations amounted to USD 2.0 billion (+8%) compared to USD 1.9 billion in the prior year quarter. The increase was mainly driven by higher cash flows from operating activities.

Balance sheet

In December 31, 2019, the assets and liabilities of the Sandoz US generic oral solids and dermatology businesses were reported as current assets and liabilities held for sale in the consolidated balance sheet. The Sandoz US generic oral solids and dermatology businesses will now be retained by Novartis, after mutual agreement with Aurobindo to terminate the transaction. This decision was taken as approval from the U.S. Federal Trade Commission for the transaction was not obtained within the agreed timelines. As such, these assets and liabilities are reclassified to their respective consolidated balance sheet lines as at March 31, 2020, prior year consolidated balance sheet is not restated (see Note 2 and 3).

Assets

Total non-current assets of USD 100.0 billion at March 31, 2020, increased by USD 11.1 billion compared to December 31, 2019. Intangible assets other than goodwill increased by USD 8.7 billion mainly due to the acquisitions of The Medicines Company and Aspen Global Incorporated, net additions and the reclassification of the intangible assets of the disposal group held for sale of USD 0.3 billion, partially offset by amortization and impairments. Goodwill increased by USD 2.4 billion and deferred tax assets by USD 0.6 billion mainly due to the acquisition of The Medicines Company. Property, plant and equipment decreased by USD 0.1 billion, as the increase due to net additions and the reclassification of the property, plant and equipment of the disposal group held for sale of USD 0.1 billion were more than offset by depreciation and currency translation adjustments. Investments in associated companies and financial assets decreased by USD 0.3 billion, while other non-current assets increased by USD 0.3 billion mainly due an increase in the prepaid benefit costs of USD 0.2 billion, primarily from impacts of market volatilities on plan assets and changes in discount rates used to calculate the actuarial defined benefit obligations. Right-of-use assets were broadly in line compared to December 31, 2019.

Total current assets of USD 23.1 billion at March 31, 2020, decreased by USD 6.4 billion compared to December 31, 2019. This was mainly driven by a decrease in cash and cash equivalents of USD 6.6 billion. Inventories increased by USD 0.4 billion, partly due to the reclassification of the inventory of the disposal group held for sale. Trade receivables increased by USD 0.2 billion to USD 8.5 billion and other current assets increased by USD 0.3 billion. Marketable securities, commodities, time deposits, and derivative financial instruments and income tax receivable remained broadly in line with December 31, 2019.

Liabilities

Total non-current liabilities of USD 40.8 billion increased by USD 6.3 billion compared to December 31, 2019. Long-term financial debts increased by USD 3.4 billion, mainly driven by the issuance of US dollar denominated bonds for a notional amount of USD 5.0 billion partly offset by the reclassification from non-current to current financial debt of EUR 1.3 billion (USD 1.4 billion) bonds due in 2021. Deferred tax liabilities increased by USD 1.7 billion mainly due to the acquisition of The Medicines Company. Provisions and other non-current liabilities increased by USD 1.2 billion mainly due to USD 0.9 billion increase of pension obligations, mainly resulting from actuarial losses primarily from impact of market volatilities on plan assets and changes in discount rates used to calculate the actuarial defined benefit obligations. Lease liabilities were broadly in line compared to December 31, 2019.

Total current liabilities of USD 31.3 billion increased by USD 3.0 billion compared to December 31, 2019. Financial debts and derivative financial instruments increased by USD 3.9 billion, due to the reclassification from non-current to current financial debt of EUR 1.3 billion (USD 1.4 billion) bonds due in 2021 and higher short-term borrowings, partly offset by the repayment of a US dollar bond of USD 1.0 billion at maturity. This net increase was partially offset by a decrease of USD 0.4 billion in provisions and other current liabilities and a decrease of USD 0.6 billion in trade payables. Lease liabilities and current income tax liabilities were broadly in line compared to December 31, 2019.

Group equity

The Group’s equity decreased by USD 4.6 billion to USD 51.0 billion at March 31, 2020 compared to December 31, 2019. This decrease was mainly due to the cash-dividend payment of USD 7.0 billion, net actuarial losses of USD 0.6 billion and purchase of treasury shares of USD 0.1 billion. This was partially offset by net income of USD 2.2 billion, the net effect of exercise of options and employee transactions of USD 0.8 billion and equity-based compensation of USD 0.2 billion.

Net debt and debt/equity ratio

The Group’s liquidity amounted to USD 5.0 billion at March 31, 2020, compared to USD 11.4 billion at December 31, 2019. Total non-current and current financial debts, including derivatives, amounted to USD 34.8 billion at March 31, 2020, compared to USD 27.4 billion at December 31, 2019. The

 

 

debt/equity ratio increased to 0.68:1 at March 31, 2020, compared to 0.49:1 at December 31, 2019. The net debt increased to USD 29.8 billion at March 31, 2020, compared to USD 15.9 billion at December 31, 2019.

Group Liquidity  

We continuously track our liquidity positions and assets / liabilities profile. We have a strong balance sheet and related funding capabilities to meet our funding needs. Concerning the COVID-19 situation, the Group has not experienced liquidity or cash flow disruptions during the first quarter of 2020 and maintains a cash and cash equivalents position of USD 4.5 billion as per March 31, 2020. We believe that our strong credit rating allows for continued access to short term funding in the US commercial paper market. The Group further has a committed credit facility of USD 6.0 billion as a backstop for the US commercial paper program, which was undrawn as of March 31, 2020, providing a further source of liquidity if needed. Novartis is well positioned to meet its ongoing financial obligations and has sufficient liquidity to support our normal business activities.

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