SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 6-K
 
 
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 or 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
 
 
Report on Form 6-K dated April 28, 2020
(Commission File No. 1-15024)
 

 
Novartis AG
(Name of Registrant)
 
 
Lichtstrasse 35
4056 Basel
Switzerland
(Address of Principal Executive Offices)
 


 
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
 
Form 20-F: x
   
Form 40-F: o
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
 
Yes: o
   
No: x
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
 
Yes: o
   
No: x
 
Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
 
Yes: o
   
No: x
 

 



Exhibits:

99.1 Financial Report Q1 2020
99.2 Interim Financial Report

SIGNATURES
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
Novartis AG
   
     
Date: April 28, 2020
By:
/s/ PAUL PENEPENT
     
 
Name:
Paul Penepent
 
Title:
Head Group Financial Reporting and Accounting
       
 

 
 
 
 
 
 
 
Novartis International AG
Novartis Global Communications
CH-4002 Basel
Switzerland
 
http://www.novartis.com
 
FINANCIAL RESULTS   •   RÉSULTATS FINANCIERS   •   FINANZERGEBNISSE

Novartis maintains strong operational performance in Q1, confirms FY 2020 guidance at this time, and advances a broad range of efforts to support the global response to COVID-19
 
·
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.”  
 
Key figures2
 
Continuing operations1
 
     
Q1 2020
     
Q1 2019
   
% change
 
 
 
USD m
   
USD m
   
USD
   
cc
 
Net sales
   
12 283
     
11 106
     
11
     
13
 
Operating income
   
2 744
     
2 242
     
22
     
30
 
Net income
   
2 173
     
1 868
     
16
     
24
 
EPS (USD)
   
0.96
     
0.81
     
19
     
27
 
Free cash flow
   
2 021
     
1 869
     
8
         
Core operating income
   
4 177
     
3 254
     
28
     
34
 
Core net income
   
3 549
     
2 811
     
26
     
31
 
Core EPS (USD)
   
1.56
     
1.21
     
29
     
34
 
1 Refers to continuing operations as defined on page 33 of the Condensed Interim Financial Report, excludes Alcon, includes the businesses of Innovative Medicines and Sandoz, as well as the continuing corporate functions. 2 Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 43 of the Condensed Interim Financial Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year. 3 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. 4 Please see detailed guidance assumptions on page 6 including the forecast assumptions of a return to normal prescription and consumption dynamics during Q2 in our major markets and no Gilenya and no Sandostatin LAR generics enter in 2020 in the US.
 
 
1
 

COVID-19 Update

As the COVID-19 situation continues to evolve, our primary concern remains the health and safety of our associates and patients globally while we also continue to take strong actions to help address the pandemic.

We are supporting our associates through a range of programs, from additional paid days off for those who have to care for ill family members at home, enhanced child care, on-line learning programs and enabled working from home. Importantly, Novartis has made a commitment that there will be no COVID-19 related job losses.

During the first quarter, COVID-19 did not have a material impact on our underlying business, financial condition, cash collections or liquidity. COVID-19 did result in increased forward purchasing by customers, including at the patient level, as some patients filled prescriptions to cover a longer period of time. Novartis continues to deliver needed medicines to patients and healthcare providers around the world. We do not anticipate supply chain disruption for the majority of the portfolio at this time given strong mitigation measures and inventory levels.

Clinical trials are continuing and we are leveraging our digital tools to limit the disruption caused by the pandemic. We are seeing slowdowns in new enrollments in ongoing clinical studies and start-up with new studies. We are utilizing the SENSE digital technology implemented in 2018 that allows us to track in real time all of our clinical trials (500+) in more than 70 countries at the level of individual patients and shift to contingency plans rapidly as the situation evolves. This includes, direct-to-patient medication delivery supported by home nursing services, virtual safety assessments and remote medical monitoring. At this time we remain confident the impact on our ongoing clinical trials is manageable. Looking ahead for the remainder of the year, we do not expect delays in our planned 2020 regulatory submissions. We will continue to monitor and provide more updates as the year unfolds.

Novartis is participating in collaborative research efforts such as the COVID-19 Therapeutics Accelerator, coordinated by the Bill & Melinda Gates Foundation, Wellcome, and Mastercard, as well as a COVID-19 directed partnership organized by the Innovative Medicines Initiative. Both are cross-sector collaborations that bring several pharmaceutical companies and expert academic institutions into coordinated research programs, with the aim of bringing the most promising molecules forward quickly without organizational barriers. Additionally, in response to an urgent call for research and development on COVID-19, issued by the European Federation of Pharmaceutical Industries and Associations, Novartis is contributing by making available several compounds from its libraries that are considered suitable for in vitro antiviral testing.
Together with the research community, Novartis is assessing whether our clinical-stage investigational or approved medicines could be repurposed beyond their intended or approved indications to treat complications of SARS-CoV-2 infection. Novartis initiated a Phase III clinical trial in collaboration with Incyte to evaluate the use of ruxolitinib in combination with standard of care (SoC), compared to SoC alone, as well as a Phase III study of canakinumab, in patients with pneumonia as a result of SARS-CoV-2 infection. In addition, Novartis announced a Phase III trial of hydroxychloroquine, alone and in combination with azithromycin, for the treatment of hospitalized patients with COVID-19 disease.  Under an expedited managed access program, Novartis has granted requests and provided ruxolitinib and canakinumab. Requests for investigator initiated trials have also been granted for COVID-19-related clinical studies of imatinib, secukinumab, hydroxychloroquine and valsartan. Novartis has committed to donate up to 130 million doses of generic hydroxychloroquine to support the global COVID-19 pandemic response.
Financials

In order to comply with International Financial Reporting Standards (IFRS), Novartis has separated the Group’s reported financial data for the current and prior years into “continuing” and “discontinued” operations. The results of the Alcon business in 2019 are reported as discontinued operations. See page 33 and Notes 2, 3 and 10 in the Condensed Interim Financial Report for a full explanation.

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.
 
2
 

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 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).

Operating income was USD 2.7 billion (+22%, +30% cc) mainly driven by higher sales, partly offset by launch investments and higher legal expenses.

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 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.

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.

Innovative Medicines net sales were USD 9.8 billion (+11%, +13% cc). Pharmaceuticals BU sales grew 14% (cc), driven by continuing momentum on Entresto and Cosentyx and the launch uptake of Zolgensma. Oncology BU grew 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 and partly benefited from COVID-19 related forward purchasing. 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.

Sandoz net sales were USD 2.5 billion (+9%, +11% cc) driven by volume growth of 15 percentage points including COVID-19 related forward purchasing, partly offset by price erosion of 4 percentage points. Excluding the US, net sales grew strongly (+17% cc). Global sales of Biopharmaceuticals grew to USD 450 million (+31% cc), mainly driven by continued strong double-digit growth in Europe.

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.
 
3
 

Key growth drivers (Q1 performance):
Underpinning our financial results in the first quarter is a continued focus on key growth drivers including:
·
Entresto (USD 569 million, +62% cc) continued demand-driven growth momentum across geographies. In the US, new weekly prescriptions reached all-time-high at >4,500.
·
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.
·
Cosentyx (USD 930 million, +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. 
·
Promacta/Revolade (USD 403 million, +33% cc) continued double-digit growth in all regions driven by increased use in ITP and further uptake as first-line treatment for SAA in the US.
·
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. Xiidra was acquired from Takeda in 2019.
·
Tafinlar + Mekinist (USD 366 million, +26% cc) continued double-digit growth driven by demand in adjuvant melanoma as well as NSCLC.
·
Piqray (USD 74 million) continued strong launch uptake in the US, benefiting from further uptake in PIK3CA mutation testing.
·
Kisqali (USD 161 million, +82% cc) continued strong double-digit growth driven by demand in all geographies, benefiting from the impact of positive overall survival data from two pivotal Phase III trials (MONALEESA-7 and MONALEESA-3).
·
Beovu (USD 68 million) was launched in the US in October 2019. Post marketing cases reported as severe vision loss, retinal artery occlusion and/or vasculitis had an unfavorable impact on US sales.
·
Kymriah (USD 93 million, +109% cc) grew strongly in Europe and in the US. Over 230 qualified treatment centers and more than 20 countries have coverage for at least one indication.
·
Mayzent (USD 30 million) sales increased driven by enhanced education of the EXPAND trial data.
·
Adakveo (USD 15 million) US launch is progressing well, with high brand awareness among hematologists. Payer coverage and reimbursement are 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 on July 1.
·
Biopharmaceuticals (biosimilars, biopharmaceutical contract manufacturing and Glatopa) grew to USD 450 million (+31% cc), driven by continued strong double-digit growth in Europe.
·
Emerging Growth Markets, which comprise all markets except the US, Canada, Western Europe, Japan, Australia and New Zealand, sales grew 14% (cc) including China (USD 622 million), which grew 18% (cc).
 
Net sales of the top 20 Innovative Medicines products in 2020
     
Q1 2020
   
% change
 
   
USD m
   
USD
   
cc
 
Cosentyx
   
930
     
18
     
19
 
Gilenya
   
772
     
1
     
2
 
Entresto
   
569
     
59
     
62
 
Lucentis
   
487
     
-9
     
-6
 
Tasigna
   
487
     
12
     
15
 
Promacta/Revolade
   
403
     
31
     
33
 
Sandostatin
   
374
     
-5
     
-3
 
Tafinlar + Mekinist
   
366
     
23
     
26
 
Galvus Group
   
338
     
7
     
10
 
Gleevec/Glivec
   
329
     
7
     
9
 
Jakavi
   
318
     
23
     
27
 
Xolair
   
307
     
9
     
13
 
Afinitor/Votubia
   
296
     
-21
     
-20
 
Diovan Group
   
274
     
5
     
9
 
Exforge Group
   
258
     
-3
     
0
 
Ilaris
   
213
     
41
     
44
 
Exjade/Jadenu
   
172
     
-28
     
-26
 
Zolgensma
   
170
   
nm
   
nm
 
Votrient
   
166
     
-11
     
-9
 
Kisqali
   
161
     
77
     
82
 
Top 20 products total
   
7 390
     
12
     
14
 
 
 
4
 

R&D Update - Key developments from the first quarter
New approvals and regulatory update
·
Zolgensma IV formulation received a positive opinion from the CHMP for conditional approval for patients with SMA and a clinical diagnosis of Type 1 or SMA patients with up to three copies of the SMN2 gene. Zolgensma was also approved by the Japanese MHLW for SMA in patients under the age of two, including those who are presymptomatic at diagnosis; reimbursement is expected by the end of H1 2020, pending agreement Zolgensma is expected to be available at that time.
·
Beovu (brolucizumab) was approved with a prefilled syringe in the EU, Japan, Switzerland, Canada and Australia.
·
Capmatinib (INC280) was granted Priority Review designation by the FDA and the review is expected to be completed within six months. Novartis was previously granted FDA Breakthrough Therapy designation for capmatinib.
·
Kymriah received FDA Regenerative Medicine Advanced Therapy designation for treatment of patients with follicular lymphoma.
·
Cosentyx received a positive CHMP opinion for treatment of patients with non-radiographic axSpA, the fourth indication. Also the filing was accepted in the US.
Regulatory submissions and filings
·
Inclisiran (KJX839) was filed in the US for primary hyperlipidemia and in the EU for both primary hypercholesterolemia and mixed dyslipidemia, which include Familial Hypercholesterolemia, ASCVD or ASCVD risk equivalent patients.
·
Ofatumumab (OMB157) was filed in the US and EU for treatment of RMS. US filed with priority review voucher.
Results from ongoing trials and other highlights
·
Beovu (brolucizumab) safety update. 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.
·
AveXis presented compelling data at MDA in both IV and IT formulations of AVXS-101:
o
Zolgensma IV data showed rapid, significant, clinically meaningful benefit including prolonged event-free survival, motor milestone achievement and durability for up to 5 years post-dosing.
o
AVXS-101 IT STRONG data in Type 2 patients showed a mean increase of 6.0 points in Hammersmith, twice the clinically meaningful threshold.
·
Inclisiran data from three pivotal trials was published in NEJM showing durable and potent efficacy, with a safety profile similar to placebo. Inclisiran reduced LDL-C at 17 months by 52% in patients with ASCVD (ORION-10), 50% for ASCVD and ASCVD risk equivalents (ORION-11) and by 48% in patients with HeFH (ORION-9); all of whom had elevated LDL-C levels despite maximally tolerated lipid-lowering therapy. Prespecified exploratory analysis based on safety reporting from the three trials, showed fewer major adverse cardiovascular events (MACE) with inclisiran compared to placebo. Injection site reactions were more frequent with inclisiran, the majority of them mild and none of them severe.
·
Cosentyx built on its axSpA leadership with US label update for dosing flexibility in ankylosing spondylitis, allowing 300 mg up-titration option based on Phase III MEASURE 3 study results. The label update provides clinicians with greater choice for their patients.
·
Jakavi REACH2 Phase III study of acute graft-versus-host disease (GvHD) data was published in NEJM. REACH2 trial results confirm Jakavi significantly improves overall response rate at 28 days vs. best available therapy in steroid-refractory GvHD.
·
Sandoz completed the acquisition of Aspen’s Japanese operations, strengthening its position in world’s third largest market for generics and off-patent medicines.
 
5
 

Capital structure and net debt

Retaining a good balance between investment in the business, a strong capital structure and attractive shareholder returns remains a priority.

In Q1 2020, 25.2 million shares (for an equity value of USD 1.0 billion) were delivered as a result of options exercised and share deliveries related to participation plans of associates. In the same period, 1.5 million shares (for an equity value of USD 0.1 billion) were repurchased from associates. Consequently, the total number of shares outstanding increased by 23.7 million versus December 31, 2019. Novartis aims to offset the dilutive impact from equity based participation plans of associates over the remainder of the year. These treasury share transactions resulted in an equity increase of USD 0.9 billion and a net cash inflow of USD 0.7 billion.

In the first quarter of 2020, Novartis issued bonds denominated in US dollars for a total notional amount of USD 5.0 billion, repaid a USD 1.0 billion bond issued in February 2017 at maturity and paid down a USD 7.0 billion short term credit facility drawn in January 2020 in connection with the acquisition of The Medicines Company.

As of March 31, 2020, the net debt increased by USD 13.9 billion to USD 29.8 billion compared to December 31, 2019. The increase was mainly driven by the acquisition of The Medicines Company for USD 9.6 billion and the USD 7.0 billion annual dividend payment, partly offset by USD 2.0 billion free cash flow in Q1 2020.

As of Q1 2020, the long-term credit rating for the company is A1 with Moody’s Investors Service and AA- with S&P Global Ratings.

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.

2020 Outlook
Barring unforeseen events

Continuing operations
Excluding Alcon from both 2019 and 2020
·
Net sales: expected to grow mid to high-single digit (cc)
·
From a divisional perspective, we expect net sales performance (cc) in 2020 to be as follows:
o
Innovative Medicines: expected to grow mid to high-single digit
o
Sandoz: expected to grow low-single digit
·
Core operating income: expected to grow high-single to low double digit (cc)

At Q4 2019 earnings Novartis issued guidance excluding the Sandoz US oral solids and dermatology portfolio. As Novartis is retaining the Sandoz US portfolio our guidance is now on continuing operations. Novartis expects growth of continuing operations sales and core operating income to be approximately 1% lower than the guidance provided under the previous assumption.

This guidance includes the forecast assumption that we see a return to normal prescription and consumption dynamics during Q2 in our major markets. We will closely monitor the business dynamics and provide any additional guidance at Q2 earnings. The guidance also includes the forecast assumption that no Gilenya and no Sandostatin LAR generics enter in 2020 in the US.

Foreign exchange impact
If late-April exchange rates prevail for the remainder of 2020, the currency impact for the year would be negative 3 percentage points on net sales and negative 6 percentage points on core operating income. The estimated impact of exchange rates on our results is provided monthly on our website.
 
6
 

 
Continuing operations 1, 2
   
Q1 2020
     
Q1 2019
   
% change
 
 
 
USD m
   
USD m
   
USD
   
cc 2
 
Net sales
   
12 283
     
11 106
     
11
     
13
 
Operating income
   
2 744
     
2 242
     
22
     
30
 
As a % of sales
   
22.3
     
20.2
                 
Core operating income
   
4 177
     
3 254
     
28
     
34
 
As a % of sales
   
34.0
     
29.3
                 
Net income
   
2 173
     
1 868
     
16
     
24
 
EPS (USD)
   
0.96
     
0.81
     
19
     
27
 
Core net income
   
3 549
     
2 811
     
26
     
31
 
Core EPS (USD)
   
1.56
     
1.21
     
29
     
34
 
Cash flows from operating activities
   
2 528
     
2 334
     
8
         
Free cash flow
   
2 021
     
1 869
     
8
         
 
Innovative Medicines
   
Q1 2020
     
Q1 2019
   
% change
 
 
 
USD m
   
USD m
   
USD
   
cc
 
Net sales
   
9 755
     
8 780
     
11
     
13
 
Operating income
   
2 755
     
2 109
     
31
     
38
 
As a % of sales
   
28.2
     
24.0
                 
Core operating income
   
3 607
     
2 922
     
23
     
28
 
As a % of sales
   
37.0
     
33.3
                 
 
Sandoz
   
Q1 2020
     
Q1 2019
   
% change
 
 
 
USD m
   
USD m
   
USD
   
cc
 
Net sales
   
2 528
     
2 326
     
9
     
11
 
Operating loss / income
   
- 45
     
273
   
nm
   
nm
 
As a % of sales
   
-1.8
     
11.7
                 
Core operating income
   
673
     
461
     
46
     
53
 
As a % of sales
   
26.6
     
19.8
                 
 
Corporate
   
Q1 2020
     
Q1 2019
   
% change
 
 
 
USD m
   
USD m
   
USD
   
cc
 
Operating income / loss
   
34
     
-140
   
nm
   
nm
 
Core operating loss
   
-103
     
-129
     
20
     
19
 
                                 
 
Discontinued operations
   
Q1 2020
     
Q1 2019
   
% change
 
 
 
USD m
   
USD m
   
USD
   
cc
 
Net sales
           
1 777
                 
Operating  income
           
71
                 
As a % of sales
           
4.0
                 
Core operating income
           
350
                 
As a % of sales
           
19.7
                 
Net loss
           
- 101
                 
 
Total Group
   
Q1 2020
     
Q1 2019
   
% change
 
 
 
USD m
   
USD m
   
USD
   
cc
 
Net income
   
2 173
     
1 767
     
23
     
31
 
EPS (USD)
   
0.96
     
0.77
     
25
     
34
 
Core net income
   
3 549
     
3 089
     
15
     
19
 
Core EPS (USD)
   
1.56
     
1.33
     
17
     
22
 
Cash flows from operating activities
   
2 528
     
2 412
     
5
         
Free cash flow
   
2 021
     
1 807
     
12
         
nm = not meaningful
                               

1 Continuing operations include the businesses of Innovative Medicines and Sandoz Division including the US generic oral solids and dermatology portfolio as well as the continuing corporate functions and discontinued operations include the business of Alcon. See page 33 of the Condensed Interim Financial Report for full explanation.
2 Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 43 of the Condensed Interim Financial Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year.

Detailed financial results accompanying this press release are included in the Condensed Interim Financial Report at the link below:
https://ml-eu.globenewswire.com/resource/download/20dba83d-112c-41e6-a2a5-359246d7fa80/
 
7
 

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 “to support,” “ensure,” “estimate,” “growth,” “remain,” “impact,” “ongoing,” “submissions,” “expected,” “focus,” “launch,” “launch investments,” “innovation,” “potential,” “guidance,” “will,” “to grow,” “commitment,” “promising,” “pipeline,” “to make,” “evolve,” “continue,” “to take,” “continues,” “anticipate,” “are supporting,” “participating,” “aim,” “contributing,” “assessing,” “committed,” “to evaluate,” “continuing,” “may,” “momentum,” “could,” “would,” “leveraging,” “launched,” “on track,” “growing,” “continued,” “progressing,” “to determine,” “expanding,” “pending,” “to be completed,” “strongly,” “priority review designation,” “priority,” “breakthrough therapy designation,” “regenerative medicine advanced therapy designation,” “filings,” “outlook,” “unforeseen,” “forecast,” “enter,” “focused,” “to believe,” “believe,” “proposed,” “prevail,” “to improve,” “transformative,” “innovative,” “inventive,” “manageable,” “minimal disruption,” “confident,” “looking ahead,” “expect,” “planned,” 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 manufacturing or supply chain disruptions; or regarding our estimates of the impact of past and future COVID-19 related forward purchasing on sales and on core operating income in the future; or regarding the impact of the COVID-19 pandemic on clinical trials, and research and development timelines; or regarding potential future or pending transactions; or regarding potential future sales or earnings of the Group or any of its divisions or potential shareholder returns; or by discussions of strategy, plans, expectations or intentions; or regarding the Group’s liquidity or cash flow positions and its ability to meet its ongoing financial obligations and operational needs; or regarding drug discovery collaboration efforts and support of clinical trials for existing Novartis medicines and a commitment to donate up to 130 million doses of generic hydroxychloroquine to support the global COVID-19 pandemic response. Such forward-looking statements are based on the current beliefs and expectations of management regarding future events, and are subject to significant known and unknown risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking statements. You should not place undue reliance on these statements. In particular, our expectations could be affected by, among other things: disruptions of our manufacturing or supply chain impacting our ability to meet demand for our products in the future; liquidity or cash flow disruptions affecting our ability to meet our ongoing financial obligations and to support our ongoing business activities; uncertainties regarding the impact of past and future COVID-19 related forward purchasing on sales and core operating income in the future; the impact of the COVID-19 pandemic on enrollment in, initiation and completion of our clinical trials in the future, and research and development timelines; global trends toward healthcare cost containment, including ongoing government, payer and general public pricing and reimbursement pressures and requirements for increased pricing transparency; uncertainties regarding potential significant breaches of data security or data privacy, or disruptions of our information technology systems; regulatory actions or delays or government regulation generally, including potential regulatory actions or delays with respect to the development of the products described in this press release; the potential that the strategic benefits, synergies or opportunities expected from the acquisition of the Japanese business of Aspen Global Incorporated, and other transactions described, may not be realized or may be more difficult or take longer to realize than expected; potential adverse reactions to the transaction by customers, suppliers or strategic partners; dependence on key personnel of Aspen Global Incorporated; dependence on third parties to fulfill manufacturing and supply obligations; the uncertainties involved in predicting shareholder returns; 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 that commenced in prior years and is expected to continue this year; 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, including, among others, product liability litigation, disputes and litigation with business partners or business collaborators, government investigations generally, litigation and investigations regarding sales and marketing practices, and intellectual property 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.
 
8
 

About Novartis
Novartis is reimagining medicine to improve and extend people’s lives. As a leading global medicines company, we use innovative science and digital technologies to create transformative treatments in areas of great medical need. In our quest to find new medicines, we consistently rank among the world’s top companies investing in research and development. Novartis products reach nearly 800 million people globally and we are finding innovative ways to expand access to our latest treatments. About 109,000 people of more than 145 nationalities work at Novartis around the world. Find out more at https://www.novartis.com.

Novartis will conduct a conference call with investors to discuss this news release today at 13:00 Central European time and 7:00 Eastern Time. A simultaneous webcast of the call for investors and other interested parties may be accessed by visiting the Novartis website. A replay will be available after the live webcast by visiting. https://www.novartis.com/investors/event-calendar

Detailed financial results accompanying this press release are included in the condensed interim financial report at the link below. Additional information is provided on Novartis divisions and pipeline of selected compounds in late stage development and a copy of today's earnings call presentation can be found at. https://www.novartis.com/investors/event-calendar

Important dates
July 21, 2020
Second quarter results 2020
October 27, 2020
Third quarter results 2020
 
 
9
 
 
 
 
 
 
 
 
Novartis International AG
Novartis Global Communications
CH-4002 Basel
Switzerland
 
http://www.novartis.com
 
CONDENSED INTERIM FINANCIAL REPORT – SUPPLEMENTARY DATA

Novartis Q1 2020 Condensed Interim Financial Report – Supplementary Data
 
INDEX
Page
GROUP AND DIVISIONAL OPERATING PERFORMANCE Q1 2020
 
Group
2
Innovative Medicines
5
Sandoz
10
CASH FLOW AND GROUP BALANCE SHEET
11
INNOVATION REVIEW
14
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
 
Consolidated income statements
18
Consolidated statements of comprehensive income
19
Consolidated balance sheets
20
Consolidated statements of changes in equity
21
Consolidated statements of cash flows
22
Notes to condensed consolidated interim financial statements, including update on legal proceedings
23
SUPPLEMENTARY INFORMATION
43
CORE RESULTS
 
Reconciliation from IFRS to core results
45
Group
46
Innovative Medicines
47
Sandoz
48
Corporate
49
Discontinued operations
50
ADDITIONAL INFORMATION
 
Income from associated companies
51
Condensed consolidated changes in net debt / Share information
52
Free cash flow
53
Effects of currency fluctuations
54
Impact of COVID-19 on key figures
55
DISCLAIMER
56
 
1
 

Novartis Q1 2020 Condensed Interim Financial Report – Supplementary Data
 
Key figures 1
   
Q1 2020
     
Q1 2019
   
% change
 
 
 
USD m
   
USD m
   
USD
   
cc 2
 
Net sales to third parties from continuing operations
   
12 283
     
11 106
     
11
     
13
 
Divisional operating income from continuing operations
   
2 710
     
2 382
     
14
     
21
 
Corporate income and expense, from continuing operations, net
   
34
     
- 140
   
nm
   
nm
 
Operating income from continuing operations
   
2 744
     
2 242
     
22
     
30
 
    As % of net sales
   
22.3
     
20.2
                 
Income from associated companies
   
123
     
80
     
54
     
52
 
Interest expense
   
- 239
     
- 226
     
- 6
     
- 7
 
Other financial income and expense
   
- 7
     
44
   
nm
   
nm
 
Taxes
   
- 448
     
- 272
     
- 65
     
- 76
 
Net income from continuing operations
   
2 173
     
1 868
     
16
     
24
 
Net loss from discontinued  operations
           
- 101
                 
Net income
   
2 173
     
1 767
     
23
     
31
 
Basic earnings per share from continuing operations (USD)
   
0.96
     
0.81
     
19
     
27
 
Basic earnings per share from discontinued operations (USD)
           
-0.04
                 
Basic earnings per share (USD)
   
0.96
     
0.77
     
25
     
34
 
Cash flows from operating activities from continuing operations
   
2 528
     
2 334
     
8
         
Free cash flow from continuing operations 2
   
2 021
     
1 869
     
8
         
Core 2
                               
Core operating income from continuing operations
   
4 177
     
3 254
     
28
     
34
 
    As % of net sales
   
34.0
     
29.3
                 
Core net income from continuing operations
   
3 549
     
2 811
     
26
     
31
 
Core net income from discontinued operations
           
278
                 
Core net income
   
3 549
     
3 089
     
15
     
19
 
Core basic earnings per share from continuing operations (USD)
   
1.56
     
1.21
     
29
     
34
 
Core basic earnings per share from discontinued operations (USD)
           
0.12
                 
Core basic earnings per share (USD)
   
1.56
     
1.33
     
17
     
22
 
1 Continuing operations include the businesses of Innovative Medicines and Sandoz Division including the US generic oral solids and dermatology portfolio and Corporate activities and discontinued operations include the business of Alcon. See page 33 for full explanation.
2 Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 43. Unless otherwise noted, all growth rates in this Release refer to same period in prior year.
 
Impacts of COVID-19
·
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. Product flow across country borders is working smoothly and we believe that we have sufficient inventory levels in our warehouses to meet demand
·
We estimate3 that forward purchasing had a favorable impact of approximately USD 0.4 billion on sales. Core operating income benefited by approximately USD 0.4 billion from forward purchasing and lower spending. These impacts are expected to reverse in the remainder of 2020
·
Currently manageable disruption to clinical trials and minimal disruption to ongoing regulatory submissions
·
Our cash collections continue to be according to our normal trade terms, and days sales outstanding remains at normal levels
·
Novartis is well positioned to meet its ongoing financial obligations and has sufficient liquidity to support our normal business activities
3 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.
 
Financials
In order to comply with International Financial Reporting Standards (IFRS), Novartis has separated the Group’s reported financial data for the current and prior years into “continuing” and “discontinued” operations. The results of the Alcon business in 2019 are reported as discontinued operations. See page 33 and Notes 2, 3 and 10 for a full explanation.
 
 
2
 

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.

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.

Operating income
Operating income was USD 2.7 billion (+22%, +30% cc) mainly driven by higher sales, partly offset by launch investments and higher legal expenses. Operating income margin was 22.3% of net sales, increasing by 2.1 percentage points (+3.1 percentage points cc). Core adjustments amounted to USD 1.4 billion (2019: USD 1.0 billion).

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.
 
 
 
3
 


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, EPS and Free cash flow
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.
 
 
4


Innovative Medicines
     
Q1 2020
     
Q1 2019
   
% change
 
   
USD m
   
USD m
   
USD
   
cc
 
Net sales
   
9 755
     
8 780
     
11
     
13
 
Operating income
   
2 755
     
2 109
     
31
     
38
 
  As % of net sales
   
28.2
     
24.0
                 
Core operating income
   
3 607
     
2 922
     
23
     
28
 
  As % of net sales
   
37.0
     
33.3
                 

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
 
 
5


ONCOLOGY BUSINESS UNIT
     
Q1 2020
     
Q1 2019
   
% change
 
 
 
USD m
   
USD m
   
USD
   
cc
 
Tasigna
   
487
     
434
     
12
     
15
 
Promacta/Revolade
   
403
     
307
     
31
     
33
 
Sandostatin
   
374
     
392
     
-5
     
-3
 
Tafinlar + Mekinist1
   
366
     
297
     
23
     
26
 
Gleevec/Glivec
   
329
     
307
     
7
     
9
 
Jakavi
   
318
     
258
     
23
     
27
 
Afinitor/Votubia
   
296
     
373
     
-21
     
-20
 
Exjade/Jadenu
   
172
     
238
     
-28
     
-26
 
Votrient
   
166
     
187
     
-11
     
-9
 
Kisqali
   
161
     
91
     
77
     
82
 
Lutathera
   
112
     
106
     
6
     
6
 
Kymriah
   
93
     
45
     
107
     
109
 
Piqray
   
74
           
nm
   
nm
 
Adakveo
   
15
           
nm
   
nm
 
Other
   
282
     
286
     
-1
     
1
 
Total Oncology business unit
   
3 648
     
3 321
     
10
     
12
 
  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
 
 
6
 

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.

PHARMACEUTICAL BUSINESS UNIT

OPHTHALMOLOGY
     
Q1 2020
     
Q1 2019
   
% change
 
 
 
USD m
   
USD m
   
USD
   
cc
 
Lucentis
   
487
     
533
     
-9
     
-6
 
Xiidra
   
90
           
nm
   
nm
 
Beovu
   
68
           
nm
   
nm
 
Other
   
551
     
628
     
-12
     
-10
 
Total Ophthalmology
   
1 196
     
1 161
     
3
     
5
 
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.
 
IMMUNOLOGY, HEPATOLOGY and DERMATOLOGY
     
Q1 2020
     
Q1 2019
   
% change
 
 
 
USD m
   
USD m
   
USD
   
cc
 
Cosentyx
   
930
     
791
     
18
     
19
 
Ilaris
   
213
     
151
     
41
     
44
 
Total Immunology, Hepatology and Dermatology
   
1 143
     
942
     
21
     
23
 
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.
 
 
 
7


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

NEUROSCIENCE
     
Q1 2020
     
Q1 2019
   
% change
 
 
 
USD m
   
USD m
   
USD
   
cc
 
Gilenya
   
772
     
766
     
1
     
2
 
Zolgensma
   
170
           
nm
   
nm
 
Aimovig
   
36
     
18
     
100
     
108
 
Mayzent
   
30
           
nm
   
nm
 
Other
   
12
     
13
     
-8
     
0
 
Total Neuroscience
   
1 020
     
797
     
28
     
30
 
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.

CARDIOVASCULAR, RENAL AND METABOLISM
     
Q1 2020
     
Q1 2019
   
% change
 
 
 
USD m
   
USD m
   
USD
   
cc
 
Entresto
   
569
     
357
     
59
     
62
 
Other
   
1
     
6
     
-83
     
-95
 
Total Cardiovascular, Renal & Metabolism
   
570
     
363
     
57
     
59
 

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.

RESPIRATORY
     
Q1 2020
     
Q1 2019
   
% change
 
 
 
USD m
   
USD m
   
USD
   
cc
 
Xolair
   
307
     
281
     
9
     
13
 
Ultibro Group
   
160
     
157
     
2
     
5
 
Other
   
4
     
7
     
-43
     
-25
 
Total Respiratory
   
471
     
445
     
6
     
9
 
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.
 
 
 
8

 
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.

ESTABLISHED MEDICINES
     
Q1 2020
     
Q1 2019
   
% change
 
 
 
USD m
   
USD m
   
USD
   
cc
 
Galvus Group
   
338
     
315
     
7
     
10
 
Diovan Group
   
274
     
261
     
5
     
9
 
Exforge Group
   
258
     
267
     
-3
     
0
 
Zortress/Certican
   
127
     
116
     
9
     
12
 
Neoral/Sandimmun(e)
   
101
     
103
     
-2
     
1
 
Voltaren/Cataflam
   
92
     
113
     
-19
     
-17
 
Other
   
517
     
576
     
-10
     
-8
 
Total Established Medicines
   
1 707
     
1 751
     
-3
     
0
 

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.
 
 
9


Sandoz
 
   
Q1 2020
     
Q1 2019
   
% change
 
   
USD m
   
USD m
   
USD
   
cc
 
Net sales
   
2 528
     
2 326
     
9
     
11
 
Operating loss / income
   
-45
     
273
   
nm
   
nm
 
  As % of net sales
   
-1.8
     
11.7
                 
Core operating income
   
673
     
461
     
46
     
53
 
  As % of net sales
   
26.6
     
19.8
                 

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
 
 
10

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.
 
 
11



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
 
 
12

 
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.
 
 
13



Innovation Review

Benefiting from our continued focus on innovation, Novartis has one of the industry’s most innovative and inventive pipelines with more than 160 projects in clinical development.

Selected Innovative Medicines approvals: US, EU and Japan in Q1
Product
Active ingredient/
Descriptor
Indication
Region
Beovu
brolucizumab
Neovascular (wet) AMD
EU & Japan
Mayzent
siponimoid
Secondary Progressive Multiple Sclerosis (SPMS)
EU
Zolgensma
onasemnogene abepar-vovec
Spinal Muscular Atrophy
(IV formulation)
Japan

Selected Innovative Medicines projects awaiting regulatory decisions
   
Completed submissions
 
Product
Indication
US
EU
Japan
News update
BYL719
(Piqray in US, alpelisib)
 
PIK3CA mutant HR+, HER2 (-) postmenopausal adv BC 2nd line (+fulv)
Approved
Q4 2018
   
Cosentyx
Non-radiographic axial spondyloarthritis
Q4 2019
Q3 2019
Q4 2019
- CHMP positive opinion received in March
- US FDA file accepted
Entresto
HF with reduced ejection fraction
Approved
Approved
Q3 2019
 
 
Chronic heart failure with preserved ejection fraction
Q2 2020
   
- Submitted to FDA in April 2020
INC280
(capmatinib)
NSCLC (cMET amp and mut)
Q4 2019
 
Q4 2019
- Granted FDA Priority Review
KJX839
(inclisiran)
Hyperlipidemia
Q4 2019
Q1 2020
   
Mayzent
SPMS
Approved
Approved
Q1 2019
 
OMB157
(ofatumumab)
Relapsing Multiple Sclerosis
Q4 2019
Q1 2020
 
- on track for June 2020 FDA approval
QMF149
Asthma
 
Q2 2019
Q3 2019
- CHMP positive opinion received – Mar-2020
- Japan decision anticipated H1 2020
QVM149
Asthma
 
Q2 2019
Q3 2019
- CHMP positive opinion anticipated Q2 2020
- Japan decision anticipated H1 2020
SEG101
(Adakveo in US)
Sickle cell disease
Approved
Q2 2019
   
Xiidra
Dry eye
Approved
Q4 2018
Q1 2020
- CHMP opinion anticipated mid 2020
Xolair
Nasal polyps
Q3 2019
Q4 2019
   
Zolgensma (AVXS-101)
Spinal Muscular Atrophy
(IV formulation)
Approved
Q4 2018
Approved
- Positive CHMP opinion received  in Q1 2020 for conditional approval
 
Selected Innovative Medicines pipeline projects
Project/ Compound
Potential indication/ Disease area
First planned submissions
Current Phase
News update
ABL001
Chronic myeloid leukemia 3rd  line
2021
III
 
ACZ885
(canakinumab)
Adjuvant NSCLC
2023
III
- Enrollment ongoing for Phase III studies
1st line NSCLC
2021
III
- Completed enrollment in Jan-2020
2nd line NSCLC
2021
III
 

 
 
14

AVXS-101 IT
Spinal Muscular Atrophy
(IT formulation)
2020
I / II
- STRONG data at MDA showed remarkable increases in HFMSE scores and a consistent clinically meaningful response
- FDA requested additional pre-clinical data to release the partial clinical hold. Plan to engage with FDA during Q2 to clarify scope of data required
- BLA submission timing dependent on FDA feedback could range from H2 2020 to 2021 
AVXS-201
Rett Syndrome
2023
I
 
BYL719
(alpelisib)
PROS (PIK3CA-related overgrowth spectrum)
2020
II
- Potential US filing in 2020 based on RWE data
HER2+ adv breast cancer
2023
III
 
Triple negative breast cancer
2023
III
 
 
Head and neck squamous cell carcinoma
≥2024
III
 
 
Ovarian Cancer
2023
III
 
CEE321
Atopic dermatitis
≥2024
I
 
CFZ533
(iscalimab)
Renal Tx
2023
II
 
Liver Tx
≥2024
II
 
Sjoegren’s syndrome
≥2024
II
 
Coartem
Malaria uncomplicated, <5kg patients
2023
III
 
Cosentyx
Ankylosing spondylitis head-to-head vs. adalimumab
2022
III
 
 
Hidradenitis suppurativa
2022
III
 
 
Axial spondyloarthritis IV regimen
2022
III
 
 
Giant cell arteritis
≥2024
II
 
 
Lichen Planus
≥2024
II
 
 
Lupus Nephritis
≥2024
II
 
CPK850
Retinitis pigmentosa
≥2024
II
 
CSJ117
Severe asthma
2023
II
 
ECF843
Dry eye
2022
II
 
Entresto
Post-acute myocardial infarction
2021
III
- March 2020: Enrollment completed; Interim efficacy analysis completed, trial continues as planned
INC280
(capmatinib)
Solid Tumors
≥2024
II
 
Jakavi
Acute graft-versus-host disease (GvHD)
2021
III
- Phase III results published in NEJM, confirming significant improvement in overall response
Chronic graft-versus-host disease (GvHD)
2021
III
 
KAE609
(cipargamin)
Malaria uncomplicated
≥2024
II
 
 
Malaria severe
≥2024
II
 
KAF156
(ganaplacide)
Malaria uncomplicated
≥2024
II
 
Kisqali
+ endocrine therapy
HR+/HER2- early BC (adjuvant)
2022
III
- Potential for registration as early as 2022 assuming positive, pre-planned interim analysis
KJX839
(inclisiran)
Secondary prevention of cardiovascular events in patients with elevated levels of LDLC
≥2024
III
- Acquired from The Medicines Company in Jan 2020

 
15

Kymriah (tisagenlecleucel)
r/r Follicular lymphoma
2021
II
 
r/r DLBCL in 1st relapse
2021
III
 
+ pembrolizumab
r/r DLBCL
≥2024
II
 
LAM320
Multi-drug resistant tuberculosis
2021
III
 
LJC242
(tropifexor + cenicriviroc)
Non-alcoholic steatohepatitis (NASH)
≥2024
II
 
LJN452
(tropifexor)
Non-alcoholic steatohepatitis (NASH)
≥2024
II
- FDA Fast Track designation
LMI070
Spinal Muscular Atrophy
≥2024
II
- FDA Orphan designation, EMA Orphan status obtained
- Dose ranging study ongoing
LNA043
Osteoarthritis
≥2024
II
 
LNP023
Paroxysmal nocturnal hemoglobinuria
2023
II
 
 
IgA nephropathy
2023
II
 
Membranous nephropathy
≥2024
II
 
 
C3 glomerulopathy
2023
II
 
 
Atypical haemolytic uraemic syndrome
2023
II
 
LOU064
Chronic Spontaneous Urticaria
2023
II
 
 
Sjögren’s syndrome
≥2024
II
 
177Lu-PSMA-617
Metastatic castration-resistant prostate cancer
2020
III
- On track for H2 2020 readout
177Lu-PSMA-R2
Prostate cancer
≥2024
I
 
177Lu-NeoB
Multiple Solid Tumor
≥2024
I
 
LXE408
Visceral leishmaniosis
≥2024
II
 
MBG453
Myelodysplastic syndrome
2021
II
 
 
Unfit AML
≥2024
II
 
PDR001 + Tafinlar + Mekinist
Metastatic BRAF V600+ melanoma
2020
III
- Expected submission in H2 2020
PDR001 Combo
Malignant melanoma
≥2024
II
- Enrollment ongoing
QBW251
COPD
≥2024
II
- Phase IIb recruitment ongoing
QGE031
(ligelizumab)
Chronic Spontaneous Urticaria / Chronic
Idiopathic Urticaria
2021
III
 
RTH258 (brolucizumab)
Diabetic macular edema
2021
III
- Expected readout in H2 2020
Retinal vein occlusion
2023
III
 
 
Diabetic retinopathy
2023
III
 
SAF312
Chronic ocular surface pain
≥2024
II
 
TQJ230
Secondary prevention of cardiovascular events in patients with elevated levels of lipoprotein(a)
≥2024
III
- Trial initiated, FPFV in Q4 2019
UNR844
Presbyopia
≥2024
II
 
VAY736
(ianalumab)
Auto-immune hepatitis
≥2024
II
 
Primary Sjoegren’s syndrome
≥2024
II
- FDA Fast Track designation
 
VPM087
1st line colorectal cancer / 1st line renal cell carcinoma
≥2024
I
 
Xolair
Food Allergy
2021
III
 
ZPL389
(adriforant)
Atopic dermatitis
≥2024
II
 
 
 
16

 
Selected Sandoz approvals and pipeline projects
Project/ Compound
Potential indication/
Disease area
News update
GP2411 (denosumab)
Osteoporosis, skeletal-related in bone met. pts (same as originator)
- In Phase III
- First patient enrolled July 2019
Insulin glargine, lispro, aspart
Diabetes
- Collaboration with Gan & Lee
natalizumab
Multiple sclerosis and Crohn’s disease
- Collaboration Polpharma Biologics
trastuzumab
HER2-positive cancer tumors
- Collaboration EirGenix

 
17

 
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Consolidated income statements

First quarter (unaudited)



(USD millions unless indicated otherwise)
Note
Q1 2020
Q1 2019
Change
Net sales to third parties from continuing operations
9
12 283
11 106
1 177
Sales to discontinued segment
53
-53
Net sales from continuing operations
12 283
11 159
1 124
Other revenues
9
425
296
129
Cost of goods sold
-3 722
-3 251
-471
Gross profit from continuing operations
8 986
8 204
782
Selling, general and administration
-3 486
-3 330
-156
Research and development
-2 060
-2 299
239
Other income
261
203
58
Other expense
-957
-536
-421
Operating income from continuing operations
2 744
2 242
502
Income from associated companies
123
80
43
Interest expense
-239
-226
-13
Other financial income and expense
-7
44
-51
Income before taxes from continuing operations
2 621
2 140
481
Taxes
-448
-272
-176
Net income from continuing operations
2 173
1 868
305
Net loss from discontinued operations
10
-101
101
Net income
2 173
1 767
406
Attributable to:
Shareholders of Novartis AG
2 176
1 766
410
Non-controlling interests
-3
1
-4
Weighted average number of shares outstanding - Basic (million)
2 275
2 318
-43
Basic earnings per share from continuing operations (USD)1
0.96
0.81
0.15
Basic earnings per share from discontinued operations (USD)1
-0.04
0.04
Total basic earnings per share (USD)1
0.96
0.77
0.19
Weighted average number of shares outstanding – Diluted (million)
2 292
2 339
-47
Diluted earnings per share from continuing operations (USD)1
0.95
0.80
0.15
Diluted earnings per share from discontinued operations (USD)1
-0.04
0.04
Total diluted earnings per share (USD)1
0.95
0.76
0.19
 1 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.



18

 
Consolidated statements of comprehensive income

First quarter (unaudited)



(USD millions)
Q1 2020
Q1 2019
Change
Net income
2 173
1 767
406
Other comprehensive income to be eventually recycled into the consolidated income statement:
Fair value adjustments on debt securities, net of taxes
-1
1
-2
Fair value adjustments on deferred cash flow hedges, net of taxes
1
-1
Total fair value adjustments on financial instruments, net of taxes
-1
2
-3
Novartis share of other comprehensive income
recognized by associated companies, net of taxes

-12

-54

42
Net investment hedge
37
39
-2
Currency translation effects
2
-336
338
Total of items to eventually recycle
26
-349
375
Other comprehensive income never to be recycled into the consolidated income statement:
Actuarial losses from defined benefit plans, net of taxes1
-612
-503
-109
Fair value adjustments on equity securities, net of taxes
-74
95
-169
Total of items never to be recycled
-686
-408
-278
Total comprehensive income
1 513
1 010
503
Attributable to:
Shareholders of Novartis AG
1 516
1 010
506
Continuing operations
1 516
1 023
493
Discontinued operations
-13
13
Non-controlling interests
-3
0
-3
  
 1 Included in 2019 is a USD -358 million impact related to the revaluation of deferred tax assets on Swiss pension plans that were previously recognized through other comprehensive income. This revaluation resulted from the Swiss canton Basel-Stadt tax reform, enacted in February 2019. 
  
  
 



19

 
Consolidated balance sheets


(USD millions)


Note
Mar 31,
2020
(unaudited)
Dec 31,
2019
(audited)


Change
Assets
Non-current assets
Property, plant and equipment
9
11 933
12 069
-136
Right-of-use assets
1 627
1 677
-50
Goodwill
9
28 937
26 524
2 413
Intangible assets other than goodwill
9
37 451
28 787
8 664
Investments in associated companies
8 303
8 644
-341
Deferred tax assets
8 542
7 909
633
Financial assets
2 218
2 518
-300
Other non-current assets
988
738
250
Total non-current assets
99 999
88 866
11 133
Current assets
Inventories
6 398
5 982
416
Trade receivables
8 541
8 301
240
Income tax receivables
254
254
0
Marketable securities, commodities, time deposits and
derivative financial instruments


445

334

111
Cash and cash equivalents
4 528
11 112
-6 584
Other current assets
2 932
2 680
252
Total current assets without disposal group
23 098
28 663
-5 565
Assets of disposal group held for sale
3
841
-841
Total current assets
23 098
29 504
-6 406
Total assets
123 097
118 370
4 727
Equity and liabilities
Equity
Share capital
936
936
Treasury shares
-68
-80
12
Reserves
50 035
54 618
-4 583
Issued share capital and reserves attributable
to Novartis AG shareholders


50 903

55 474

-4 571
Non-controlling interests
74
77
-3
Total equity
50 977
55 551
-4 574
Liabilities
Non-current liabilities
Financial debts
23 800
20 353
3 447
Lease liabilities
1 690
1 703
-13
Deferred tax liabilities
7 524
5 867
1 657
Provisions and other non-current liabilities
7 812
6 632
1 180
Total non-current liabilities
40 826
34 555
6 271
Current liabilities
Trade payables
4 828
5 424
-596
Financial debts and derivative financial instruments
10 956
7 031
3 925
Lease liabilities
249
246
3
Current income tax liabilities
2 305
2 194
111
Provisions and other current liabilities
12 956
13 338
-382
Total current liabilities without disposal group
31 294
28 233
3 061
Liabilities of disposal group held for sale
3
31
-31
Total current liabilities
31 294
28 264
3 030
Total liabilities
72 120
62 819
9 301
Total equity and liabilities
123 097
118 370
4 727
 



20

 
Consolidated statements of changes in equity

First quarter (unaudited)




(USD millions)




Share
capital




Treasury
shares




Retained
earnings




Total value
adjustments
Issued share
capital and
reserves
attributable
to Novartis
shareholders



Non-
controlling
interests




Total
equity
Total equity at January 1, 2020
936
-80
59 275
-4 657
55 474
77
55 551
Net income
2 176
2 176
-3
2 173
Other comprehensive income
-12
-648
-660
0
-660
Total comprehensive income
2 164
-648
1 516
-3
1 513
Dividends
-6 987
-6 987
-6 987
Purchase of treasury shares
-1
-140
-141
-141
Exercise of options and employee
transactions


8

815


823


823
Equity-based compensation
5
157
162
162
Shares delivered to Alcon employees
as a result of the Alcon spin-off


0

21


21


21
Taxes on treasury share transactions
30
30
30
Fair value adjustments on financial
assets sold



16

-16



Other movements
5
5
5
Total of other equity movements
12
-6 083
-16
-6 087
-6 087
Total equity at March 31, 2020
936
-68
55 356
-5 321
50 903
74
50 977
 


(USD millions)




Share
capital




Treasury
shares




Retained
earnings




Total value
adjustments
Issued share
capital and
reserves
attributable
to Novartis
shareholders



Non-
controlling
interests




Total
equity
Total equity at January 1, 2019
944
-69
82 191
-4 452
78 614
78
78 692
Impact of change in accounting policies1
3
3
3
Restated equity at January 1, 2019
944
-69
82 194
-4 452
78 617
78
78 695
Net income
1 766
1 766
1
1 767
Other comprehensive income
-54
-702
-756
-1
-757
Total comprehensive income
1 712
-702
1 010
1 010
Dividends
-6 645
-6 645
-6 645
Dividend in kind2
-26 361
-26 361
-26 361
Purchase of treasury shares
-1
-201
-202
-202
Exercise of options and employee
transactions


3

197


200


200
Equity-based compensation
4
268
272
272
Decrease of treasury share repurchase
obligation under a share buyback trading plan



284


284


284
Transaction costs, net of taxes3
48
48
48
Fair value adjustments on financial
assets sold



16

-16



Other movements
6
6
6
Total of other equity movements
6
-32 388
-16
-32 398
-32 398
Total equity at March 31, 2019
944
-63
51 518
-5 170
47 229
78
47 307
 1 The impact of change in accounting policy includes USD 3 million related to the implementation of IFRS 16 Leases.
 2 Fair value of the dividend in kind of the Alcon business distributed to Novartis AG shareholders and ADR (American Depositary Receipt) holders approved at the 2019 Annual General Meeting held on February 28, 2019. Distribution was effected on April 9, 2019, whereby each Novartis AG shareholders and ADR holder received 1 Alcon Inc. share for every 5 Novartis AG shares/ADRs they held on April 8, 2019, close of business (see Notes 2, 3 and 10 for further details).
 3 Transaction costs directly attributable to the distribution (spin-off) of the Alcon business to Novartis AG shareholders.
 



21

 
Consolidated statements of cash flows

First quarter (unaudited)

(USD millions)
Note
Q1 2020
Q1 2019
Change
Net income from continuing operations
2 173
1 868
305
Adjustments to reconcile net income from continuing operations to net cash flows from operating activities from continuing operations
Reversal of non-cash items and other adjustments
6.1
2 857
2 016
841
Dividends received from associated companies and others
487
460
27
Interest received
32
85
-53
Interest paid
-94
-167
73
Other financial receipts
209
209
Other financial payments
-9
-44
35
Taxes paid
6.2
-596
-400
-196
Net cash flows from operating activities from continuing operations
before working capital and provision changes


5 059

3 818

1 241
Payments out of provisions and other net cash movements in
non-current liabilities


-404

-193

-211
Change in net current assets and other operating cash flow items
-2 127
-1 291
-836
Net cash flows from operating activities from continuing operations
2 528
2 334
194
Net cash flows from operating activities from discontinued operations
78
-78
Total net cash flows from operating activities
2 528
2 412
116
Purchases of property, plant and equipment
-237
-282
45
Proceeds from sale of property, plant and equipment
3
164
-161
Purchases of intangible assets
-246
-337
91
Proceeds from sale of intangible assets
56
71
-15
Purchases of financial assets
-52
-109
57
Proceeds from sale of financial assets
242
35
207
Purchases of other non-current assets
-41
-10
-31
Proceeds from sale of other non-current assets
0
3
-3
Acquisitions and divestments of interests in associated
companies, net


-2

-2

0
Acquisitions and divestments of businesses, net
6.3
-9 901
-96
-9 805
Purchases of marketable securities and commodities
-271
-45
-226
Proceeds from sale of marketable securities and commodities
322
2 359
-2 037
Net cash flows used in/from investing activities from continuing
operations


-10 127

1 751

-11 878
Net cash flows used in investing activities from discontinued operations
10
-14
-423
409
Total net cash flows used in/from investing activities
-10 141
1 328
-11 469
Dividends paid to shareholders of Novartis AG
-6 987
-6 645
-342
Acquisitions of treasury shares
-141
-222
81
Proceeds from exercised options and
other treasury share transactions


816

200

616
Increase in non-current financial debts
4 945
4 945
Repayments of non-current financial debts
-1 000
-3 001
2 001
Change in current financial debts
3 655
-149
3 804
Payment of lease liabilities, net
-68
-22
-46
Other financing cash flows, net
-194
-461
267
Net cash flows from/used in financing activities from continuing operations
1 026
-10 300
11 326
Net cash flows used in/from financing activities from discontinued operations
10
-13
617
-630
Total net cash flows from/used in financing activities
1 013
-9 683
10 696
Net change in cash and cash equivalents before
effect of exchange rate changes


-6 600

-5 943

-657
Less cash and cash equivalents of discontinued operations
at March 31, 2019



-499

499
Effect of exchange rate changes on cash and cash equivalents
16
-22
38
Total net change in cash and cash equivalents
-6 584
-6 464
-120
Cash and cash equivalents at January 1
11 112
13 271
-2 159
Cash and cash equivalents at March 31
4 528
6 807
-2 279



22

 
Notes to the Condensed Interim Consolidated Financial Statements for the three-month period ended March 31, 2020 (unaudited)

1. Basis of preparation

These Condensed Interim Consolidated Financial Statements for the three-month period ended March 31, 2020, were prepared in accordance with International Accounting Standard 34 Interim Financial Reporting and accounting policies set out in the 2019 Annual Report published on January 29, 2020.

2. Selected critical accounting policies

The Group’s principal accounting policies are set out in Note 1 to the Consolidated Financial Statements in the 2019 Annual Report and conform with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

The preparation of financial statements requires management to make certain estimates and assumptions, either at the balance sheet date or during the year, which affect the reported amounts of assets and liabilities, including any contingent amounts, the distribution liability recognized in connection with the distribution of Alcon Inc. to Novartis AG shareholders, as well as of revenues and expenses. Actual outcomes and results could differ from those estimates and assumptions.

As disclosed in the 2019 Annual Report, goodwill, and acquired In-Process Research & Development projects are reviewed for impairment at least annually and these, as well as all other investments in intangible assets, are reviewed for impairment whenever an event or decision occurs that raises concern about their balance sheet carrying value. The amount of goodwill and other intangible assets on the Group’s consolidated balance sheet has risen significantly in recent years, primarily from acquisitions. Impairment testing may lead to potentially significant impairment charges in the future that could have a materially adverse impact on the Group’s results of operations and financial condition.

Non-current assets held for sale or held for distribution to owners

Non-current assets are classified as assets held for sale or related to discontinued operations when their carrying amount is to be recovered principally through a sale transaction or distribution to owners and a sale or distribution to owners is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell with any resulting impairment recognized. Assets related to discontinued operations and assets of disposal group held for sale are not depreciated or amortized. The prior year consolidated balance sheet is not restated.

If in a subsequent period, the criteria for classification as held for sale are no longer met, the recoverable amount of assets and liabilities are reclassified out of assets held for sale into the respective balance sheet lines, prior year consolidated balance sheet is not restated. The cumulative amount of depreciation and amortization not recorded since the date of their classification to assets held for sale, and any required adjustments to the recoverable amounts of assets are recognized in the consolidated income statement.

Distribution of Alcon Inc. to Novartis AG shareholders

During the first quarter of 2019, at the Annual General Meeting (AGM) of Novartis AG shareholders, held on February 28, 2019, the Novartis AG shareholders approved a special distribution by way of a dividend in kind to effect the spin-off of Alcon Inc.

The February 28, 2019, shareholder approval for the spin-off required the Alcon Division and selected portions of corporate activities attributable to Alcon’s business (the “Alcon business”) to be reported as discontinued operations.

The shareholder approval to spin off the Alcon business also required the recognition of a distribution liability at the fair value of the Alcon business. The Group elected to measure the distribution liability at the fair value of the Alcon business net assets taken as a whole. The distribution liability was recognized through a reduction in retained earnings. It was required to be adjusted at each balance sheet date for changes in its estimated fair value, up to the date of the distribution to shareholders through retained

23

 
earnings. Any resulting impairment of the business assets to be distributed would have been recognized in the consolidated income statements in “Other expense” of discontinued operations, at the date of initial recognition of the distribution liability or at subsequent dates resulting from changes of the distribution liability valuation. At the April 8, 2019 distribution settlement date, the resulting gain, which was measured as the excess amount of the distribution liability over the then-carrying value of the net assets of the business distributed, was recognized on the line “Gain on distribution of Alcon Inc. to Novartis AG shareholders” in the income statement of discontinued operations.

The recognition of the distribution liability required the use of valuation techniques for purposes of impairment testing of the Alcon business’ assets to be distributed and for the measurement of the fair value of the distribution liability. These valuations required the use of management assumptions and estimates related to the Alcon business’ future cash flows, market multiples to estimate day one market value, and control premiums to apply in estimating the Alcon business fair value. These fair value measurements were classified as “Level 3” in the fair value hierarchy. The section “Impairment of goodwill and intangible assets” in Note 1 to the Consolidated Financial Statements of the 2019 Annual Report provides additional information on key assumptions that are highly sensitive in the estimation of fair values using valuation techniques.

Transaction costs that were directly attributable to the distribution (spin-off) of Alcon to the Novartis shareholders, and that would otherwise have been avoided, were recorded as a deduction from equity.

For additional disclosures, refer to Notes 3 and 10.

New IFRS standard effective as of January 1, 2020

IFRS 3 Business Combination amendments

The IASB issued amendments to IFRS 3 Business Combinations that revised the definition of a business, which assist entities with the evaluation of when an asset or group of assets acquired or disposed of should be considered a business. This amended standard has been applied to transactions entered into on or after January 1, 2020. The amended standard allows an entity to apply an optional concentration test, on a transaction-by-transaction basis, to evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If this optional concentration test is met, the entity may choose to consider the transaction an acquisition of an asset or set of assets. The adoption of this amended standard on January 1, 2020 did not have a significant impact on our consolidated financial statements and is not expected to have a significant impact in future periods. However, this will depend on the facts and circumstances of future transactions and if the Group decides to apply the optional concentration test in the assessment of whether an acquired set of activities and assets is or is not a business.

There are no other IFRS standards or interpretations not yet effective that would be expected to have a material impact on the Group.



24

 
3. Significant transactions

Significant transactions in 2020

Innovative Medicines – acquisition of The Medicines Company
On November 23, 2019, Novartis entered into an agreement and plan of merger (the Merger Agreement) with The Medicines Company, a US-based pharmaceutical company headquartered in Parsippany, New Jersey USA. Pursuant to the Merger Agreement, on December 5, 2019, Novartis, through a subsidiary, commenced a tender offer to acquire all outstanding shares of The Medicines Company for USD 85 per share, or a total consideration of approximately USD 9.6 billion in cash on a fully diluted basis, including the equivalent share value related to The Medicines Company’s convertible notes, in accordance with their terms. The tender offer expired on January 3, 2020, and on January 6, 2020, the acquiring subsidiary merged with and into The Medicines Company, resulting in The Medicines Company becoming an indirect wholly owned subsidiary of Novartis. Novartis financed the transaction through available cash, and short- and long-term borrowings.

The Medicines Company is focused on the development of inclisiran, a potentially first-in-class, twice yearly therapy that allows administration during patients’ routine visits to their healthcare professionals and will potentially contribute to improved patient adherence and sustained lower LDL-C levels.

The fair value of the total purchase consideration was USD 9.6 billion. The preliminary purchase price allocation resulted in net identifiable assets of approximately USD 7.1 billion, consisting of USD 8.5 billion intangible assets, USD 0.1 billion other net assets, USD 1.5 billion net deferred tax liabilities and goodwill of approximately USD 2.5 billion.

Results of operations since the date of acquisition were not material.

Sandoz – acquisition of the Japanese business of Aspen Global Incorporated
On November 11, 2019, Sandoz entered into an agreement for the acquisition of the Japanese business of Aspen Global Incorporated (AGI), a wholly owned subsidiary of Aspen Pharmacare Holdings Limited. Under the agreement, Sandoz acquired the shares in Aspen Japan K.K. and associated assets held by AGI. The transaction closed on January 31, 2020.

Aspen’s portfolio in Japan consists of off-patent medicines with a focus on anesthetics and specialty brands. The acquisition will enable Sandoz to expand its presence in the third-largest worldwide generics marketplace.

The purchase price consist of EUR 300 million (USD 331 million) upfront payment, less customary purchase price adjustment of EUR 29 million (USD 32 million), plus potential milestone payments of up to EUR 120 million (USD 132 million), which AGI is eligible to receive upon the achievement of specified milestones.

The fair value of the total purchase consideration was EUR 342 million (USD 377 million). The amount consisted of an initial cash payment of EUR 271 million (USD 299 million) and the fair value of contingent consideration of EUR 71 million (USD 78 million), which they are eligible to receive upon the achievement of specified milestones. The preliminary purchase price allocation resulted in net identifiable assets of approximately USD 308 million, consisting of USD 269 million intangible assets, USD 26 million other net assets, USD 13 million net deferred tax assets and goodwill of approximately USD 69 million. Results of operations since the date of acquisition were not material.

Sandoz – retention of US dermatology business and generic US oral solids portfolio, previously planned to be divested
On September 6, 2018, Novartis announced that it entered into a stock and asset purchase agreement (SAPA) with Aurobindo Pharma USA Inc. (Aurobindo) for the sale of selected portions of its Sandoz US portfolio, specifically the Sandoz US dermatology business and generic US oral solids portfolio, for USD 0.8 billion in cash and potential earnouts. The closing was conditional on obtaining regulatory approval.

In March 2020, Novartis took the decision to retain the Sandoz US generic oral solids and dermatology businesses and entered into a mutual agreement with Aurobindo to terminate the transaction. The

25

 
decision was taken as regulatory approval from the US Federal Trade Commission was not obtained within the SAPA agreed timelines.

The cumulative amount of the depreciation on property, plant and equipment and amortization on intangible assets, not recorded in the consolidated income statement since the date of classification as held for sale, amounting to USD 38 million and USD 102 million, respectively, was recognized in the consolidated income statement in the first quarter of 2020. In addition, an impairment of currently marketed products of USD 42 million was recognized in the first quarter of 2020 consolidated income statement.

As at March 31, 2020, the assets and liabilities of the Sandoz US generic oral solids and dermatology businesses were reclassified out of assets and liabilities of disposal group held for sale. The prior year balance sheet is not required to be restated.

In the Group’s consolidated balance sheet at December 31, 2019, the assets and liabilities classified as disposal group assets and liabilities held for sale consisted of the following:


(USD millions)

Dec 31,
2019
Assets of disposal group classified as held for sale
Property, plant and equipment
169
Intangible assets other than goodwill
475
Deferred tax assets
11
Other non-current assets
2
Inventories
181
Other current assets
3
Total
841
Liabilities of disposal group classified as held for sale
Deferred tax liabilities
2
Provisions and other non-current liabilities
4
Provisions and other current liabilities
25
Total
31

There are no cumulative income or expenses included in other comprehensive income relating to the disposal group.



Significant transactions in 2019

Completion of the spin-off of the Alcon business through a dividend in kind distribution to Novartis AG shareholders

On June 29, 2018, Novartis announced its intention to seek shareholder approval for the spin-off of the Alcon business into a separately traded standalone company, following the complete structural separation of the Alcon business into a standalone company (the Alcon business or Alcon Inc.).

The Novartis AG shareholders approved the spin-off of the Alcon business at the 2019 Annual General Meeting held on February 28, 2019, subject to completion of certain conditions precedent to the distribution. Upon shareholder approval, the Alcon business was reported as discontinued operations, and the fair value of the Alcon business exceeded the carrying value of its net assets.

The conditions precedent to the spin-off were met and on April 8, 2019 the spin-off of the Alcon business was effected by way of a distribution of a dividend in kind of Alcon Inc. shares to Novartis AG shareholders and ADR (American Depositary Receipt) holders (the Distribution), which amounted to USD 23.4 billion and is recognized as a reduction to retained earnings. Through the Distribution, each Novartis AG shareholder received one Alcon Inc. share for every five Novartis AG shares/ADRs they held on April 8, 2019, close of business. As of April 9, 2019, the shares of Alcon Inc. are listed on the SIX Swiss Exchange (SIX) and on the New York Stock Exchange (NYSE) under the symbol “ALC.”

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The dividend in kind distribution liability to effect the spin-off of the Alcon business (the distribution liability) amounted to USD 26.4 billion at March 31, 2019, unchanged from its initial recognition on February 28, 2019, and was in excess of the carrying value of the Alcon business net assets as of February 28, 2019, and as of March 31, 2019. The net assets of the Alcon business amounted to USD 23.1 billion as at March 31, 2019.

On March 6, 2019, Alcon entered into financing arrangements with a syndicate of banks under which it borrowed on April 2, 2019, a total amount of USD 3.2 billion. These borrowings consisted of approximately USD 2.8 billion and the equivalent of USD 0.4 billion in EUR in bridge and other term loans under such Alcon facilities agreement. In addition, approximately USD 0.3 billion of borrowings under a number of local bilateral facilities in different countries, with the largest share of borrowings in Japan, were raised. This resulted in a total gross debt of USD 3.5 billion. These outstanding borrowings of the Alcon legal entities were recorded in the balance sheet and financing cash flow from discontinued operations. Prior to the spin-off, through a series of intercompany transactions, Alcon legal entities paid approximately USD 3.1 billion in cash to Novartis and its affiliates.

At the April 8, 2019 Distribution, the fair value of the distribution liability of the Alcon business amounted to USD 23.4 billion, a decrease of USD 3.0 billion from March 31, 2019. As mentioned above, prior to the spin-off, through a series of intercompany transactions, Alcon legal entities incurred additional net financial debt and paid approximately USD 3.1 billion in cash to Novartis and its affiliates. This additional net debt and transactions resulted in a decrease in Alcon’s net assets to USD 20.0 billion at the date of the Distribution of the dividend in kind to Novartis AG shareholders on April 8, 2019. The distribution liability at April 8, 2019, remained in excess of the then-carrying value of the Alcon business net assets.

Certain consolidated foundations own Novartis AG dividend-bearing shares restricting their availability for use by the Group. These Novartis AG shares are accounted for as treasury shares. Through the Distribution, these foundations received Alcon Inc. shares representing an approximate 4.7% equity interest in Alcon Inc. Upon the loss of control of Alcon Inc. through the Distribution, the financial investment in Alcon Inc. was recognized at its fair value based on the opening traded share price of Alcon Inc. on April 9, 2019 (a Level 1 hierarchy valuation). At initial recognition, its fair value of USD 1.3 billion was reported on the Group’s consolidated balance sheet as a financial asset. Management has designated this investment at fair value through other comprehensive income.

The total non-taxable, non-cash gain recognized at the distribution date of the spin-off of the Alcon business amounted to USD 4.7 billion consisting of:


(USD millions)
April 8,
2019
Net assets derecognized1
-20 025
Derecognition of distribution liability
23 434
Difference between net assets and distribution liability
3 409
Recognition of Alcon Inc. shares obtained through consolidated foundations
1 273
Currency translation gains recycled into the consolidated income statement
123
Transaction costs recognized in the consolidated income statement
-114
Gain on distribution of Alcon Inc. to Novartis AG shareholders
4 691
 1 See Note 10 for additional information.

For additional disclosure on discontinued operations, refer to Note 10.

Innovative Medicines – acquisition of IFM Tre, Inc.
On May 7, 2019, Novartis acquired IFM Tre, Inc., a privately held, US-based biopharmaceutical company focused on developing anti-inflammatory medicines targeting the NLRP3 inflammasome. The acquisition gives Novartis full rights to IFM Tre, Inc.’s portfolio of NLRP3 antagonists. The NLRP3 antagonists portfolio consists of one clinical program and two preclinical programs: IFM-2427, a first-in-class, clinical-stage systemic antagonist for an array of chronic inflammatory disorders, including atherosclerosis and nonalcoholic steatohepatitis (NASH); a preclinical-stage gutdirected molecule for

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the treatment of inflammatory bowel disease; and a preclinical-stage central nervous system (CNS)-penetrant molecule.

The previously held interest of 9% was adjusted to its fair value of USD 33 million through the consolidated income statement at acquisition date. This remeasurement resulted in a gain of USD 14 million. The fair value of the total purchase consideration for acquiring the 91% stake Novartis did not already own amounted to USD 361 million. The amount consisted of an initial cash payment of USD 285 million, and the fair value of the contingent consideration of USD 76 million due to the IFM Tre, Inc. shareholders, which they are eligible to receive upon the achievement of specified development and commercialization milestones. The purchase price allocation resulted in net identifiable assets of USD 355 million, mainly intangibles, and goodwill of USD 39 million. The 2019 results of operations since the date of acquisition were not material.

Innovative Medicines – acquisition of Xiidra
On May 8, 2019, Novartis entered into an agreement with Takeda Pharmaceutical Company Limited (Takeda) to acquire the assets associated with Xiidra (lifitegrast ophthalmic solution) 5% worldwide. Xiidra is the first and only prescription treatment approved to treat both signs and symptoms of dry eye by inhibiting inflammation caused by the disease. The transaction bolsters the Novartis front-of-the-eye portfolio and ophthalmic leadership. The transaction closed on July 1, 2019. The purchase price consists of a USD 3.4 billion upfront payment, customary purchase price adjustments of USD 0.1 billion, and the potential milestone payments of up to USD 1.9 billion, which Takeda is eligible to receive upon the achievement of specified commercialization milestones.

The fair value of the total purchase consideration is USD 3.7 billion. The amount consists of an initial cash payment of USD 3.5 billion, and the fair value of the contingent consideration of USD 0.2 billion, which Takeda is eligible to receive upon the achievement of specified commercialization milestones.

The purchase price allocation resulted in net identifiable assets of approximately USD 3.6 billion, consisting mainly of intangible assets of USD 3.6 billion, and goodwill amounted to approximately USD 0.1 billion. In 2019, from the date of acquisition, the business generated net sales of USD 0.2 billion. Management estimates that net sales for the entire year of 2019 would have amounted to USD 0.3 billion, had the business been acquired at the beginning of the 2019 reporting period. The 2019 results of operations since the date of acquisition were not material.

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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)
2020
2019
Change
Q1 2020
Q1 2019
Change
Balance at beginning of year
2 265.0
2 311.2
-46.2
55 474
78 614
-23 140
Impact of change in accounting policy 1
3
-3
Restated equity at January 1
55 474
78 617
-23 143
Shares acquired to be cancelled
-0.8
0.8
-71
71
Other share purchases
-1.5
-1.4
-0.1
-141
-131
-10
Exercise of options and
employee transactions

14.7

5.5

9.2

823

200

623
Equity-based compensation
10.2
8.3
1.9
162
272
-110
Shares delivered to Alcon employees
as a result of the Alcon spin-off

0.3


0.3

21


21
Taxes on treasury share
transactions




30


30
Decrease of treasury
share repurchase obligation under
a share buyback trading plan










284


-284
Dividends to
shareholders of Novartis AG




-6 987

-6 645

-342
Dividend in kind to effect the
spin-off of Alcon Inc.2





-26 361

26 361
Net income of the period attributable
to shareholders of Novartis AG




2 176

1 766

410
Other comprehensive income
attributable to shareholders of
Novartis AG








-660


-756


96
Transaction costs, net of taxes3
48
-48
Other movements4
5
6
-1
Balance at March 31
2 288.7
2 322.8
-34.1
50 903
47 229
3 674
 
 1 In 2019, the impact of change in accounting policy includes USD 3 million related to the implementation of IFRS 16 Leases.
 2 Fair value of the dividend in kind of Alcon Inc. shares to Novartis AG shareholders and ADR (American Depositary Receipt) holders approved at the 2019 Annual General Meeting held on February 28, 2019. Distribution was effected on April 8, 2019, whereby each Novartis AG shareholders and ADR holder received 1 Alcon Inc. share for every 5 Novartis AG shares/ADRs they held on April 8, 2019, close of business (see Notes 2, 3 and 10 for further details).
 3 In 2019, Transaction costs directly attributable to the distribution (spin-off) of the Alcon business to Novartis AG shareholders.
 4 Impact of hyperinflationary economies



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5. Financial instruments

Fair value by hierarchy

The following table illustrates the three hierarchical levels for valuing financial instruments at fair value as of March 31, 2020 and December 31, 2019. For additional information on the hierarchies and other matters, please refer to the Consolidated Financial Statements in the 2019 Annual Report, published on January 29, 2020.

Level 1 Level 2 Level 3 Total