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 October 27, 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 Q3 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: October 27, 2020
By:
/s/ PAUL PENEPENT
     
 
Name:
Paul Penepent
 
Title:
Head Group Financial Reporting and Accounting
       
 

 
 
 
 
 
 
FINANCIAL RESULTS | RÉSULTATS FINANCIERS | FINANZERGEBNISSE
 
 
 
 
 
Novartis International AG
Novartis Global Communications
CH-4002 Basel
Switzerland
http://www.novartis.com
 
 
Novartis delivers solid Q3 performance with 11% core operating income growth, net sales in line with prior year, strong pipeline progression. Upgrades full year core operating income guidance.
Q3 net sales from continuing operations1 were in line with prior year (cc2, +1% USD):
o
Growth drivers included Entresto USD 632 million (+45% cc), Zolgensma USD 291 million (+79% cc), Cosentyx USD 1 012 million (+7% cc), Kisqali USD 183 million (+50% cc) and Promacta/Revolade USD 442 million (+16% cc)
o
Sandoz Biopharmaceuticals grew 13% (cc, +16% USD), with strong growth across all regions
o
COVID-19 negatively impacted demand, particularly: dermatology, ophthalmology and Sandoz retail
Q3 core operating income grew 11% (cc, +9% USD) due to lower spending and improved gross margin
Q3 net income in line with prior year (cc, -5% USD) mainly due to legal provisions
Q3 free cash flow2 of USD 2.7 billion (-32%) mainly due to payments related to legal settlements
Key innovation milestones:
o
Kesimpta approved and launched in the US for treatment of relapsing forms of multiple sclerosis
o
Piqray received EC approval for HR+/HER2- advanced breast cancer with a PIK3CA mutation
o
Leqvio (Inclisiran) received positive CHMP opinion for hypercholesterolemia/mixed dyslipidemia (Oct)
o
Adakveo received positive CHMP opinion for prevention of vaso-occlusive crises in sickle cell disease
Issued the healthcare industry’s first sustainability-linked bond to increase access to medicines
Received upgrades to ESG scores from third party ratings agencies including MSCI
YTD net sales from continuing operations1 grew 4% (cc2, +2% USD) and core2 operating income grew 16% (cc, 12% USD):
o
Innovative Medicines grew sales 5% (cc, +4% USD) and core operating income 13% (cc, +9% USD)
o
Sandoz sales were in line (cc, -2% USD) and core operating income grew 19% (cc, +15% USD)
2020 guidance3 for continuing operations1 Net sales expected to grow mid single digit; core operating income upgraded to low double digit to mid teens (upgraded from low double digit)
Basel, October 27, 2020 - commenting on the quarter, Vas Narasimhan, CEO of Novartis, said:
“Novartis continues to deliver solid performance with double digit increases in core operating income and expanding margins, despite the impact of COVID-19 on healthcare systems. Our key growth drivers and launches are performing well. The strength of Novartis’ underlying operations enables us to upgrade our Full Year 2020 core operating income guidance. We are excited about the progress of our pipeline including the recent US approval of Kesimpta for the treatment of relapsing forms of multiple sclerosis. We continue to integrate ESG across all our operations, with commitments to ambitious climate and access to medicines targets, as we strive for more sustained impact on our journey to become an ESG leader”.
 
Key Figures
Continuing Operations
 
Q3 2020
Q3 2019
% change
9M 2020
9M 2019
% change
 
USD m
USD m
USD
cc
USD m
USD m
USD
cc
Net sales
12 259
12 172
1
0
35 889
35 042
2
4
Operating income
2 412
2 358
2
9
7 508
7 263
3
11
Net income
1 932
2 041
-5
0
5 972
6 018
-1
6
EPS (USD)
0.85
0.90
-6
0
2.62
2.62
0
7
Free cash flow
2 697
3 968
-32
 
8 349
9 449
-12
 
Core operating income
4 069
3 748
9
11
11 915
10 650
12
16
Core net income
3 467
3 212
8
10
10 124
9 119
11
15
Core EPS (USD)
1.52
1.41
8
9
4.44
3.97
12
16
 
1 Refers to continuing operations as defined on page 42 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 54 of the Condensed Interim Financial Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year.   3  Please see detailed guidance assumptions on page 8 including the forecast assumption that we see a continuation of the return to normal global healthcare systems including prescription dynamics, particularly ophthalmology, in Q4 2020. In addition, we assume that no Gilenya and no Sandostatin LAR generics enter in 2020 in the US.
 
 
 
1
 


COVID-19 update
The COVID-19 situation continues to evolve and is taking differing courses across the multitude of geographies that Novartis operates in. We continue to take strong actions to help address the pandemic. Our primary concerns remain the health and safety of our associates and patients.
During the third quarter, overall market conditions have been recovering, though COVID-19 continues to weigh on certain therapeutic areas, most notably in dermatology, ophthalmology and the Sandoz retail business. Our operations remain stable and cash collections continue to be according to our normal trade terms, with days sales outstanding at normal levels. Novartis remains well positioned to meet its ongoing financial obligations and has sufficient liquidity to support our normal business activities. At present, drug development operations are continuing with manageable disruptions (please see Innovation Review Section of the Condensed Interim Financial Report for further information), with our range of digital technologies allowing us to proactively manage our clinical trials portfolio and rapidly mitigate any disruptions.
Novartis continues to work closely with third parties to fight the COVID-19 pandemic. In September, we announced a collaboration with the African Union to facilitate the supply of COVID-19 related medicines – with a portfolio of 15 Novartis generic and over-the-counter medicines being offered at zero-profit to 55 African and 15 CARICOM eligible countries.
Financials
In order to comply with International Financial Reporting Standards (IFRS), Novartis has separated the Group’s reported financial data into “continuing” and “discontinued” operations. The results of the Alcon business in 2019 are reported as discontinued operations. See page 42 and Notes 2, 3 and 10 in the Condensed Interim Financial Report for a full explanation.
The commentary below focuses on continuing operations including the businesses of Innovative Medicines and Sandoz, as well as the continuing Corporate functions. We also provide information on discontinued operations.
Continuing operations third quarter
Net sales were USD 12.3 billion (+1%, 0% cc) in the third quarter driven by volume growth of 7 percentage points, offset by price erosion of 4 percentage points and the negative impact from generic competition of 3 percentage points.
Operating income was USD 2.4 billion (+2%, +9% cc) mainly due to lower spending, improved gross margin and gains on financial assets, partly offset by higher legal charges.
Net income was USD 1.9 billion (-5%, 0% cc) as higher operating income was offset by a higher tax rate. EPS was USD 0.85 (-6%, 0% cc), in line with net income.
Core operating income was USD 4.1 billion (+9%, +11% cc) due to lower spending and improved gross margin. Core operating income margin was 33.2% of net sales, increasing by 2.4 percentage points (+3.2 percentage points cc).
Core net income was USD 3.5 billion (+8%, +10% cc) mainly driven by growth in core operating income. Core EPS was USD 1.52 (+8%, +9% cc), in line with core net income.
Free cash flow from continuing operations amounted to USD 2.7 billion (-32%) compared to USD 4.0 billion in the prior year quarter. This decrease was due to lower cash flows from operating activities, including higher payments related to legal settlements.
Innovative Medicines net sales were USD 9.8 billion (+2%, +1% cc) with volume contributing 9 percentage points to growth, pricing had a negative impact of 5 percentage points and generic competition had a negative impact of 3 percentage points mainly due to Afinitor and Exjade. Pharmaceuticals BU sales grew 2% (cc) driven by strong growth from Entresto, Cosentyx and Zolgensma. Growth was partly offset by declines in Established Medicines and ophthalmology brands. Oncology BU sales were broadly in line with prior year (-1% cc). Strong performance of Kisqali, Promacta/Revolade, Jakavi, Tafinlar + Mekinist and Piqray was offset by generic competition for Afinitor and Exjade. The COVID-19 pandemic continued to negatively impact dermatology and ophthalmology.
 
 
 
 
2
 


Sandoz net sales were USD 2.4 billion (-2%, -3% cc) with a volume decline of 1 percentage point (cc) impacted by ongoing disruptions to HCP practices due to COVID-19, which limited patient access to treatments for our retail business. There was a negative price effect of 2 percentage points (cc), despite the benefit from off-contract sales and favorable revenue deduction adjustments. The decline was partly offset by global sales of Biopharmaceuticals, growing 13% (cc), with strong growth across all regions.
Continuing operations nine months
Net sales were USD 35.9 billion (+2%, +4% cc) in the first nine months mainly driven by Entresto, Zolgensma and Cosentyx. Volume contributed 9 percentage points to sales growth, partly offset by price erosion of 3 percentage points and the negative impact from generic competition of 2 percentage points.
Operating income was USD 7.5 billion (+3%, +11% cc) mainly driven by sales growth, improved gross margin and lower spending, partly offset by higher amortization and lower divestment gains.
Net income was USD 6.0 billion (-1%, +6% cc) as higher operating income was offset by a higher tax rate. EPS was USD 2.62 (0%, +7% cc), growing faster than net income and benefiting from lower weighted average number of shares outstanding.
Core operating income was USD 11.9 billion (+12%, +16% cc) mainly driven by higher sales and improved gross margin. Core operating income margin was 33.2% of net sales, increasing by 2.8 percentage points (+3.6 percentage points cc).
Core net income was USD 10.1 billion (+11%, +15% cc) mainly driven by growth in core operating income. Core EPS was USD 4.44 (+12%, +16% cc), growing faster than core net income benefiting from lower weighted average number of shares outstanding.
Free cash flow from continuing operations amounted to USD 8.3 billion (-12%) compared to USD 9.4 billion in the prior year period, primarily as higher operating income adjusted for non-cash items was more than offset by payments related to legal settlements and lower divestment proceeds.
Innovative Medicines net sales were USD 28.8 billion (+4%, +5% cc) with volume contributing 12 percentage points to growth, pricing a negative 4 percentage points and generic competition had a negative impact of 3 percentage points. Pharmaceuticals BU grew 6% (cc) driven by Entresto (+48% cc), Zolgensma (reaching USD 0.7 billion) and Cosentyx (+12% cc). Growth was partly offset by declines in Lucentis and other ophthalmology products, primarily driven by lower demand due to COVID-19. Oncology BU grew 4% (cc) driven by Promacta/Revolade (+24% cc), Kisqali (+59% cc) and Piqray (reaching USD 0.2 billion).
Sandoz net sales were USD 7.1 billion (-2%, 0% cc) as volume growth of 2 percentage points (cc) was impacted by ongoing disruptions to HCP practices due to COVID-19, which limited patient access to treatments for our retail business. There was a negative price effect of 2 percentage points (cc), despite the benefit from off-contract sales and favorable revenue deduction adjustments. Sales in Europe grew 2% (cc), while sales in the US declined 14%, driven by oral solids. Global sales of Biopharmaceuticals grew 20% (cc) to USD 1.4 billion, with strong growth across all regions.
Discontinued operations
Discontinued operations include the business of Alcon and certain corporate costs directly attributable to Alcon up to the spin-off date. As the Alcon spin-off was completed on April 9, 2019, the first nine months of the prior year included three months of operating results of the divested business.

In the first nine months of 2020, there were no activities related to discontinued operations. In the first nine months of 2019, discontinued operations net sales were USD 1.8 billion, operating income amounted to USD 71 million and net income from discontinued operations was USD 4.6 billion, including the non-taxable non-cash net gain on distribution of Alcon Inc. to Novartis AG shareholders which amounted to USD 4.7 billion. For further details see Note 2 “Distribution of Alcon Inc. to Novartis AG shareholders”, Note 3 “Significant transactions – Completion of the spin-off of the Alcon business through a dividend in kind distribution to Novartis AG shareholders” and Note 10 “Discontinued operations”.
 
 
 
 
 
 
3
 


Total Group nine months
For the total Group, net income amounted to USD 6.0 billion compared to USD 10.6 billion in the prior year, including the non-taxable non-cash net gain on distribution of Alcon Inc. Basic earnings per share was USD 2.62 compared to USD 4.62 in prior year. Cash flow from operating activities for the total Group amounted to USD 9.6 billion and free cash flow to USD 8.3 billion.
Key growth drivers
Underpinning our financial results in the quarter is a continued focus on key growth drivers (ranked in order of contribution to Q3 growth) including:
Entresto
(USD 632 million, +45% cc) sustained strong growth with increased patient share across markets, driven by demand as the essential first choice therapy for rEF heart failure.
Zolgensma
(USD 291 million, +79% cc) delivered significant growth. Contributing factors included geographic expansion outside the US and increased newborn screening in the US.
Cosentyx
(USD 1 012 million, +7% cc) saw continued growth despite lower new patient starts across the market in dermatology and rheumatology due to COVID-19.
Kisqali
(USD 183 million, +50% cc) continued strong growth across all geographies, benefiting from the ongoing impact of positive overall survival data.
Promacta/Revolade
(USD 442 million, +16% cc) grew across all regions, driven by increased use in chronic immune thrombocytopenia and as first-line treatment for severe aplastic anemia in the US.
Beovu
(USD 51 million) launch roll-out continued, with approval now in more than 45 countries.
Jakavi
(USD 335 million, +18% cc) growth was driven by strong demand in the myelofibrosis and polycythemia vera indications.
Tafinlar + Mekinist
(USD 397 million, +14% cc), continued to show solid growth driven by demand in adjuvant melanoma as well as NSCLC.
Mayzent
(USD 49 million) continued to grow steadily. Growth is driven by fulfilling an important unmet need in patients showing signs of progression.
Piqray
(USD 83 million, +95% cc) grew significantly in the US as the launch roll-out continued.
Kymriah
(USD 122 million, +51% cc) grew strongly in Europe, US and Japan. Coverage continues to expand, with more than 260 qualified treatment centers and 26 countries having coverage for at least one indication.
Adakveo
(USD 35 million) US launch continues to progress well, with close to 100% brand awareness among hematologists and expanding payer coverage decisions.
Biopharmaceuticals
(USD 498 million, +13% cc) continued strong growth across all regions.
Emerging Growth Markets*
Strong growth in China (+13% cc) to USD 667 million was offset by COVID-19 related declines in certain emerging markets. Overall, sales grew 4% (cc).
*All markets except the US, Canada, Western Europe, Japan, Australia and New Zealand
 
 
 
 
 
 
4
 


Net sales of the top 20 Innovative Medicines products in 2020
 
Q3 2020
% change
9M 2020
% change
 
USD m
USD
cc
USD m
USD
cc
Cosentyx
1 012
8
7
2 886
12
12
Gilenya
 733
-12
-13
2 243
-7
-7
Entresto
 632
47
45
1 781
47
48
Tasigna
 478
-2
-2
1 445
4
5
Lucentis
 515
3
0
1 403
-11
-10
Promacta/Revolade
 442
16
16
1 267
22
24
Tafinlar + Mekinist
 397
15
14
1 134
15
17
Sandostatin
 361
-7
-7
1 076
-9
-8
Jakavi
 335
20
18
 963
17
19
Xolair
 320
7
6
 916
5
7
Galvus Group
 289
-10
-8
 906
-5
-2
Gleevec/Glivec
 280
-13
-13
 897
-6
-4
Afinitor/Votubia
 262
-35
-34
 824
-30
-29
Diovan Group
 237
-7
-6
 779
-2
1
Exforge Group
 237
-5
-5
 733
-6
-3
Zolgensma
 291
82
79
 666
nm
nm
Ilaris
 220
24
25
 633
28
30
Kisqali
 183
49
50
 503
55
59
Exjade/Jadenu
 162
-36
-37
 497
-33
-33
Votrient
 160
-19
-19
 488
-16
-14
Top 20 products total
7 546
3
2
22 040
5
6
nm = not meaningful

R&D Update - key developments from the third quarter
New approvals and regulatory update
Kesimpta
(Ofatumumab)
Received FDA approval as a subcutaneous injection for the treatment of relapsing forms of multiple sclerosis (RMS), to include: clinically isolated syndrome, relapsing-remitting disease and active secondary progressive disease. Kesimpta is the first self-administered, targeted B-cell therapy for RMS patients.
Piqray
 
Received EC approval (in combination with fulvestrant) for the treatment of HR+/HER2- advanced breast cancer with a PIK3CA mutation, after disease progression following endocrine therapy as monotherapy. Approximately 40% of HR+/HER2- advanced breast cancer patients have a PIK3CA mutation, which is associated with a poor prognosis.
Leqvio
(Inclisiran)
Received positive CHMP opinion for the treatment of adults with hypercholesterolemia or mixed dyslipidemia, marking an important milestone towards it becoming potentially available in the EU.
Cosentyx
 
Received EC approval for the treatment of moderate-to-severe plaque psoriasis in children and adolescents aged 6 to <18 years.
Approved in Japan for non-radiographic axial spondyloarthritis.
Xolair
 
Received EC approval as an add-on therapy for the treatment of adults with severe chronic rhinosinusitis with nasal polyps (CRSwNP).
Enerzair Breezhaler
 
Received EC approval, including the first digital companion (sensor and app) that can be prescribed alongside a treatment for uncontrolled asthma.
Received approval in Canada.
 
 
 
 
 
 
5
 

Adakveo
Received positive CHMP opinion for the prevention of recurrent vaso-occlusive crises in patients with sickle cell disease. If approved, Adakveo would be the first targeted sickle cell disease therapy available for use in Europe.
Beovu
EMA approved a safety label update to include additional information regarding retinal vasculitis and retinal vascular occlusion, helping guide physicians in their treatment of wet AMD.
AVXS-101 IT
FDA has acknowledged the potential of AVXS-101 IT and requested a pivotal confirmatory study to supplement the existing STRONG data and further support the regulatory submission for AVXS-101 IT.
Iptacopan
(LNP023)
EMA granted PRIME designation for iptacopan in C3 glomerulopathy (C3G).
FDA and EMA have granted an orphan drug designation to iptacopan for the treatment of C3G and paroxysmal nocturnal hemoglobinuria (PNH).
Branaplam (LMI070)
FDA granted orphan drug designation for branaplam (LMI070) for the treatment of Huntington’s Disease. Branaplam is an orally administered, once weekly, small molecule RNA splicing modulator that is currently under investigation for the treatment of spinal muscular atrophy.
Regulatory submissions and filings
Cosentyx
Submitted in the US for pediatric psoriasis indication.
Kesimpta
(Ofatumumab)
Submitted in Japan for relapsing multiple sclerosis.
Xolair
File accepted in the US for self-administered prefilled syringe.
Results from ongoing trials and other highlights
Asciminib
(ABL001)
Phase III ASCEMBL study met its primary endpoint of superiority in major molecular response rate at 24 weeks for asciminib vs. bosutinib in patients with chronic myeloid leukemia (CML) previously treated with two or more tyrosine-kinase inhibitors. Asciminib is an investigational treatment specifically targeting the ABL myristoyl pocket (STAMP).
Beovu
Phase III KITE study in diabetic macular edema (DME) met its primary endpoint, with Beovu 6mg demonstrating non-inferiority to aflibercept 2mg in mean change in best-corrected visual acuity at year one. In a secondary endpoint, Beovu demonstrated superior improvement versus aflibercept in change of central subfield thickness over the period of week 40 through week 52. More than half of patients in the Beovu arm were maintained on a three-month dosing interval through year one. Beovu demonstrated an overall well-tolerated safety profile comparable to aflibercept; in addition the rate of intraocular inflammation was equivalent between Beovu and aflibercept.
Jakavi
Phase III REACH3 study in chronic GvHD met its primary endpoint of demonstrating superior overall response rate at week 24 in patients compared to best available therapy. The study also met key secondary endpoints, significantly improving failure-free survival and patient-reported symptoms.
Kymriah
Phase II ELARA trial met its primary endpoint (complete response rate) at the interim analysis, demonstrating clinically meaningful benefit in patients with relapsed or refractory follicular lymphoma. No new safety signals were observed.
 
 
 
 
 
 
6
 

Iptacopan
(LNP023)
Data from two ongoing Phase II studies for iptacopan in PNH and C3G were presented at the European Society for Blood and Marrow Transplantation and the American Society of Nephrology, respectively.
In the PNH study, compared to baseline, iptacopan substantially improved hematological response as add-on therapy to eculizumab, including a clinically relevant increase of Hb by 2.87 g/dL (p<0.001) in the absence of red blood cell transfusions. These effects were retained in the seven of ten patients who discontinued eculizumab.
In the C3G study, iptacopan treatment led to a 49% reduction in urine protein/creatinine ratio at week 12 when compared to baseline as well as stabilization of renal function (assessed by estimated glomerular filtration rate).
In both studies iptacopan showed a favorable safety and tolerability profile.
Zolgensma
Phase III STR1VE-EU interim data, in SMA patients with more aggressive disease at baseline, demonstrated significant therapeutic benefit, including prolonged event-free survival, increased motor function and milestone achievement.
Leqvio
(Inclisiran)
Pooled data from Phase III ORION-10 and -11 trials, presented at the European Society of Cardiology, showed highly consistent efficacy in lowering low-density lipoprotein cholesterol (LDL-C) with a safety and tolerability profile similar to placebo.
Kisqali
Phase III NATALEE trial protocol was amended to increase the sample size (from c.4000 patients to c.5000 patients). The final analysis (event-driven trial) is expected for end 2022 and submission to occur in 2023.
Spartalizumab (PDR001) combination with Tafinlar + Mekinist
The Phase III COMBI-i study did not meet its primary endpoint of investigator-assessed progression-free survival for patients with advanced BRAF V600-mutated melanoma. However, the study underscores the importance of Tafinlar + Mekinist as an effective treatment option in such patients. Data from COMBI-i show positive durable responses and PFS benefit for patients treated with Tafinlar + Mekinist in the comparator arm of the trial, despite the study not meeting the primary endpoint.
Canakinumab
The Phase III CANOPY-1 trial in patients with non-small cell lung cancer passed the interim analysis; the study continues as planned.

ESG update
ESG, a key strategic priority for the Novartis Board of Directors and Executive Committee, is integrated across Novartis operations. Novartis focuses on four strategic ESG pillars defined as material by stakeholders: Ethical Standards, Pricing and Access, Global Health Challenges and Corporate Citizenship. In each of these areas, the company has developed ambitious and challenging targets. These include addressing access and global health challenges, which are areas with the highest unmet need worldwide and where Novartis can have the greatest material ESG impact. Novartis is also reinforcing its ambition to be a healthcare industry leader in environmental sustainability, further strengthening its already ambitious target for carbon neutrality to include its entire supply chain by 2030. Novartis issued the healthcare industry’s first sustainability linked bond demonstrating its commitment to wider society. Recent ESG rating agencies upgrades were based on recent settlements, strong governance including extensive ethics policies, leading programs to expand access to healthcare to people in resource-constrained settings and comprehensive employee engagement strategy relative to peers.
 
 
 
 
 
 
7
 


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.

During the first nine months of 2020, Novartis repurchased a total of 14.7 million shares for USD 1.3 billion on the SIX Swiss Exchange second trading line to mitigate dilution related to participation plans of associates. In addition, 1.6 million shares (USD 0.2 billion) were repurchased from associates. In the same period, 25.8 million shares (for an equity value of USD 1.4 billion) were delivered as a result of options exercised and share deliveries related to participation plans of associates. Consequently, the total number of shares outstanding increased by 9.5 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 a decrease in equity of USD 0.1 billion and a net cash outflow of USD 0.2 billion including the benefit from option proceeds.

In the third quarter of 2020, Novartis issued the first healthcare industry sustainability-linked bond with a notional amount of EUR 1.85 billion (USD 2.2 billion) and a coupon of 0.00%, reinforcing its commitment to patient access.

As of September 30, 2020, the net debt increased to USD 25.4 billion compared to USD 15.9 billion at 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 8.3 billion free cash flow during the first nine months of 2020.

As of Q3 2020, the long-term credit rating for the company is A1 with Moody’s Investors Service and AA- with S&P Global Ratings.

The Group has not experienced liquidity or cash flow disruptions during the nine months of 2020 due to the COVID-19 pandemic. We believe that 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 single digit (cc)
From a divisional perspective, we expect net sales performance (cc) in 2020 to be as follows:
 Innovative Medicines: expected to grow mid single digit
 Sandoz: expected to grow broadly in line with prior year, decreased from low single digit
Core operating income
Expected to grow low double digit to mid teens (cc), upgraded from low double digit

Our guidance assumes that we see a continuation of the return to normal global healthcare systems including prescription dynamics, particularly ophthalmology, in Q4 2020. In addition, we assume that no Gilenya and no Sandostatin LAR generics enter in 2020 in the US.

Foreign exchange impact
If late-October exchange rates prevail for the remainder of 2020, the foreign exchange impact for the year would be negative 1 percentage points on net sales and negative 4 percentage points on core operating income. The estimated impact of exchange rates on our results is provided monthly on our website.
 
 
 
 
 
 
8
 

Key Figures
Continuing operations1,2
Q3 2020
Q3 2019
              % change
9M 2020
9M 2019
              % change
 
USD m
USD m
USD
cc
USD m
USD m
USD
cc
Net sales
12 259
12 172
1
0
35 889
35 042
2
4
Operating income
2 412
2 358
2
9
7 508
7 263
3
11
As a % of sales
19.7
19.4
 
 
20.9
20.7
 
 
Core operating income
4 069
3 748
9
11
11 915
10 650
12
16
As a % of sales
33.2
30.8
 
 
33.2
30.4
 
 
Net income
1 932
2 041
-5
0
5 972
6 018
-1
6
EPS (USD)
0.85
0.90
-6
0
2.62
2.62
0
7
Core net income
3 467
3 212
8
10
10 124
9 119
11
15
Core EPS (USD)
1.52
1.41
8
9
4.44
3.97
12
16
Cash flows from
operating activities
3 156
4 562
-31
 
9 645
10 007
-4
 
Free cash flow
2 697
3 968
-32
 
8 349
9 449
-12
 
                 
Innovative Medicines
Q3 2020
Q3 2019
              % change
9M 2020
9M 2019
              % change
 
USD m
USD m
USD
cc
USD m
USD m
USD
cc
Net sales
9 837
9 688
2
1
28 780
27 794
4
5
Operating income
1 998
2 404
-17
-11
6 786
7 077
-4
2
As a % of sales
20.3
24.8
 
 
23.6
25.5
 
 
Core operating income
3 525
3 300
7
9
10 433
9 528
9
13
As a % of sales
35.8
34.1
 
 
36.3
34.3
 
 
                 
Sandoz
Q3 2020
Q3 2019
              % change
9M 2020
9M 2019
              % change
 
USD m
USD m
USD
cc
USD m
USD m
USD
cc
Net sales
2 422
2 484
-2
-3
7 109
7 248
-2
0
Operating income
395
191
107
113
671
746
-10
-1
As a % of sales
16.3
7.7
 
 
9.4
10.3
 
 
Core operating income
658
615
7
8
1 806
1 577
15
19
As a % of sales
27.2
24.8
 
 
25.4
21.8
 
 
                 
Corporate
Q3 2020
Q3 2019
              % change
9M 2020
9M 2019
              % change
 
USD m
USD m
USD
cc
USD m
USD m
USD
cc
Operating income/(loss)
19
-237
nm
nm
51
-560
nm
nm
Core operating loss
-114
-167
32
36
-324
-455
29
31
                 
Discontinued operations
Q3 2020
Q3 2019
              % change
9M 2020
9M 2019
% change
 
USD m
USD m
USD
cc
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 income
 
 
 
 
 
4 590
 
 
                 
Total Group
Q3 2020
Q3 2019
              % change
9M 2020
9M 2019
              % change
 
USD m
USD m
USD
cc
USD m
USD m
USD
cc
Net income
1 932
2 041
-5
0
5 972
10 608
-44
-40
EPS (USD)
0.85
0.90
-6
0
2.62
4.62
-43
-39
Core net income
3 467
3 212
8
10
10 124
9 397
8
11
Core EPS (USD)
1.52
1.41
8
9
4.44
4.09
9
12
Cash flows
from operating activities
3 156
4 562
-31
 
9 645
10 085
-4
 
Free cash flow
2 697
3 968
-32
 
8 349
9 387
-11
 
                 
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 42 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 54 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/abf99d76-7c4c-47d8-b068-0696336b8017/
 
 
 
 
9
 


Disclaimer
This press release contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, that can generally be identified by words such as “continuing,” “guidance,” “expected,” “to grow,” “continues,” “to deliver,” “to evolve,” “continue,” “to help,” “remain,” “remains,” “growth,” “to supplement,” “investigational,” “believe,” “ongoing,” “demonstrating,” “ to support,” “evolve,” “taking,” “allowing,” “will,” “launch,” “estimated,” “impact,” “submissions,” “focus,” “launches,” “innovation,” “potential,” “commitments,” “commitment,” “pipeline,” “aims,” “would,” “growing,” “expanding,” “priority,” “outlook,” “unforeseen,” “forecast,” “prevail,” “enter,” “to improve,” “transformative,” “innovative,” “manageable disruptions,” “ongoing disruptions,” “to facilitate,” “ambition,” “trends,” “expands,” “to progress,” “would,” “to delay,” “anticipate,” “expect,” “to meet,” “continuously,” “committed,” or similar expressions, or by express or implied discussions regarding potential new products, potential new indications for existing products, potential product launches, or regarding potential future revenues from any such products; or regarding the impact of the COVID-19 pandemic on certain therapeutic areas including dermatology, ophthalmology and the Sandoz retail business, and on drug development operations; or regarding potential future, pending or announced transactions; regarding potential future sales or earnings of the Group or any of its divisions; or by discussions of strategy, plans, expectations or intentions; or regarding the Group’s liquidity or cash flow positions and its ability to meet its ongoing financial obligations and operational needs; or regarding our collaboration with the African Union to supply medicines for treatment of COVID-19. Such forward-looking statements are based on the current beliefs and expectations of management regarding future events, and are subject to significant known and unknown risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking statements. You should not place undue reliance on these statements. In particular, our expectations could be affected by, among other things: liquidity or cash flow disruptions affecting our ability to meet our ongoing financial obligations and to support our ongoing business activities; the impact of the COVID-19 pandemic on enrollment in, initiation and completion of our clinical trials in the future, and research and development timelines; the impact of a partial or complete failure of the return to normal global healthcare systems including prescription dynamics, particularly in ophthalmology, in the fourth quarter of 2020; global trends toward healthcare cost containment, including ongoing government, payer and general public pricing and reimbursement pressures and requirements for increased pricing transparency; uncertainties regarding potential significant breaches of data security or data privacy, or disruptions of our information technology systems; regulatory actions or delays or government regulation generally, including potential regulatory actions or delays with respect to the development of the products described in this press release; the potential that the strategic benefits, synergies or opportunities expected from the transactions described, may not be realized or may be more difficult or take longer to realize than expected; the uncertainties in the research and development of new healthcare products, including clinical trial results and additional analysis of existing clinical data; our ability to obtain or maintain proprietary intellectual property protection, including the ultimate extent of the impact on Novartis of the loss of patent protection and exclusivity on key products; safety, quality, data integrity, or manufacturing issues; uncertainties involved in the development or adoption of potentially transformational technologies and business models; uncertainties regarding actual or potential legal proceedings, investigations or disputes; our performance on environmental, social and governance measures; general political, economic and business conditions, including the effects of and efforts to mitigate pandemic diseases such as COVID-19; uncertainties regarding future global exchange rates; uncertainties regarding future demand for our products; and other risks and factors referred to in Novartis AG’s current Form 20-F on file with the US Securities and Exchange Commission. Novartis is providing the information in this press release as of this date and does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise.

All product names appearing in italics are trademarks owned by or licensed to Novartis Group companies.
 
 
 
 
 
 
10
 


About Novartis
Novartis is reimagining medicine to improve and extend people’s lives. As a leading global medicines company, we use innovative science and digital technologies to create transformative treatments in areas of great medical need. In our quest to find new medicines, we consistently rank among the world’s top companies investing in research and development. Novartis products reach nearly 800 million people globally and we are finding innovative ways to expand access to our latest treatments. About 110,000 people of more than 140 nationalities work at Novartis around the world. Find out more at https://www.novartis.com

Novartis will conduct a conference call with investors to discuss this news release today at 14:00 Central European time and 9:00 Eastern Time. A simultaneous webcast of the call for investors and other interested parties may be accessed by visiting the Novartis website. A replay will be available after the live webcast by visiting. https://www.novartis.com/investors/event-calendar

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


Important dates
November 24, 2020
 
Meet Novartis Management, to be held virtually
January 26, 2021
 
Fourth quarter & Full Year 2020 results
March 2, 2021 
 
Annual General Meeting


 
 
 
 
 
 
 
11
 

 
 
 
 
 
 
 
 
 
 
 
 
Novartis Third Quarter and Nine Months 2020

Condensed interim financial report – Supplementary Data





















Novartis Global Communications

 
 
 
 
 
 
 
 
1
 


Novartis Third Quarter and Nine Months 2020
Condensed Interim Financial Report – Supplementary Data
INDEX
Page
GROUP AND DIVISIONAL OPERATING PERFORMANCE
 
Group
3
Innovative Medicines
8
Sandoz
14
CASH FLOW AND GROUP BALANCE SHEET
16
INNOVATION REVIEW
20
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
 
Consolidated income statements
24
Consolidated statements of comprehensive income
26
Consolidated balance sheets
27
Consolidated statements of changes in equity
28
Consolidated statements of cash flows
31
Notes to condensed consolidated interim financial statements, including update on legal proceedings
33
SUPPLEMENTARY INFORMATION
54
CORE RESULTS
 
Reconciliation from IFRS to core results
55
Group
57
Innovative Medicines
59
Sandoz
60
Corporate
61
Discontinued operations
62
ADDITIONAL INFORMATION
 
Income from associated companies
63
Condensed consolidated changes in net debt / Share information
63
Free cash flow
64
Effects of currency fluctuations
66
DISCLAIMER
68

 
 
 
 
 
 
2
 


Novartis Third Quarter and Nine Months 2020
Condensed Interim Financial Report – Supplementary Data

Group

Key figures 1, 2
Q3 2020
Q3 2019
% change
9M 2020
9M 2019
% change
 
USD m
USD m
USD
cc
USD m
USD m
USD
cc
Net sales to third parties from continuing operations
12 259
12 172
1
0
35 889
35 042
2
4
Divisional operating income from continuing operations
2 393
2 595
-8
-2
7 457
7 823
-5
2
Corporate income and expense, from continuing operations, net
19
-237
nm
nm
51
-560
nm
nm
Operating income from continuing operations
2 412
2 358
2
9
7 508
7 263
3
11
As % of net sales
19.7
19.4
 
 
20.9
20.7
 
 
Income from associated companies
226
253
-11
-10
532
509
5
5
Interest expense
-209
-216
3
1
-668
-647
-3
-5
Other financial income and expense
-19
12
nm
nm
-53
56
nm
nm
Taxes
-478
-366
-31
-38
-1 347
-1 163
-16
-24
Net income from continuing operations
1 932
2 041
-5
0
5 972
6 018
-1
6
Net income from discontinued operations
 
 
 
 
 
4 590
 
 
Net income
1 932
2 041
-5
0
5 972
10 608
-44
-40
Basic earnings per share from continuing operations (USD)
0.85
0.90
-6
0
2.62
2.62
0
7
Basic earnings per share from discontinued operations (USD)
 
 
 
 
 
2.00
 
 
Basic earnings per share (USD)
0.85
0.90
-6
0
2.62
4.62
-43
-39
Cash flows from operating activities from continuing operations
3 156
4 562
-31
 
9 645
10 007
-4
 
Free cash flow from continuing operations
2 697
3 968
-32
 
8 349
9 449
-12
 
                 
Core
 
 
 
 
 
 
 
 
Core operating income from continuing operations
4 069
3 748
9
11
11 915
10 650
12
16
As % of net sales
33.2
30.8
 
 
33.2
30.4
 
 
Core net income from continuing operations
3 467
3 212
8
10
10 124
9 119
11
15
Core net income from discontinued operations
 
 
 
 
 
278
 
 
Core net income
3 467
3 212
8
10
10 124
9 397
8
11
Core basic earnings per share from continuing operations (USD)
1.52
1.41
8
9
4.44
3.97
12
16
Core basic earnings per share from discontinued operations (USD)
 
 
 
 
 
0.12
 
 
Core basic earnings per share (USD)
1.52
1.41
8
9
4.44
4.09
9
12
                 
nm = not meaningful
               

1 Continuing operations include the businesses of Innovative Medicines and Sandoz Division including the US generic oral solids and dermatology portfolio and Corporate activities and discontinued operations include the business of Alcon. See page 42 for full explanation.
2 Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 54. Unless otherwise noted, all growth rates in this Release refer to same period in prior year.
 
 
 
 
 
 
3
 

COVID-19 and ESG update
·
Overall market conditions have been recovering, though COVID-19 continues to weigh on certain therapeutic areas
·
The negative impact on demand has been most notable in dermatology, ophthalmology and Sandoz retail
·
Our operations remain stable and cash collections continue to be according to our normal trade terms, with days sales outstanding at normal levels
·
Novartis remains well positioned to meet its ongoing financial obligations and has sufficient liquidity to support our normal business activities
·
Drug development operations are continuing with manageable disruptions (please see Innovation Review section), with our range of digital technologies allowing us to proactively manage our clinical trials portfolio
·
Novartis continues to work closely with third parties to fight the COVID-19 pandemic
·
In September, we announced a collaboration with the African Union to facilitate the supply of COVID-19 related medicines
·
ESG, a key strategic priority for the Novartis Board of Directors and Executive Committee, is integrated across Novartis operations
·
Novartis focuses on four strategic ESG pillars defined as material by stakeholders: Ethical Standards, Pricing and Access, Global Health Challenges and Corporate Citizenship
·
We reinforced our ambition to be a healthcare industry leader in environmental sustainability, further strengthening already ambitious target for carbon neutrality to include our entire supply chain by 2030
·
Novartis issued the healthcare industry’s first sustainability-linked bond demonstrating its commitment to wider society
·
Recent ESG rating agencies upgrades were based on: recent settlements, strong governance including extensive ethics policies, leading programs to expand access to healthcare to people in resource-constrained settings and comprehensive employee engagement strategy relative to peers

Financials
In order to comply with International Financial Reporting Standards (IFRS), Novartis has separated the Group’s reported financial data into “continuing” and “discontinued” operations. The results of the Alcon business in 2019 are reported as discontinued operations. See page 42 and Notes 2, 3 and 10 for a full explanation.
The commentary below focuses on continuing operations including the businesses of Innovative Medicines and Sandoz, as well as the continuing Corporate functions. We also provide information on discontinued operations.
Continuing operations third quarter
Net sales
Net sales were USD 12.3 billion (+1%, 0% cc) in the third quarter driven by volume growth of 7 percentage points, offset by price erosion of 4 percentage points and the negative impact from generic competition of 3 percentage points.
Corporate income and expense, net
Corporate income and expense, which includes the cost of Group headquarter and coordination functions, amounted to an income of USD 19 million in the third quarter compared to an expense of USD

 
 
 
4
 



237 million in prior year, mainly driven by favorable contributions from the Novartis Venture Fund and lower restructuring costs.
Operating income
Operating income was USD 2.4 billion (+2%, +9% cc) mainly due to lower spending, improved gross margin and gains on financial assets, partly offset by higher legal charges.
Core operating income was USD 4.1 billion (+9%, +11% cc) due to lower spending and improved gross margin. Core operating income margin was 33.2% of net sales, increasing by 2.4 percentage points (+3.2 percentage points cc).
Income from associated companies
Income from associated companies decreased from USD 253 million in prior year to USD 226 million in the third quarter of 2020 driven by a lower estimated share of income from Roche Holding AG.
Core income from associated companies decreased from USD 313 million in prior year to USD 288 million in the third quarter of 2020 in line with the decrease in reported income from associated companies.
Interest expense and other financial income/expense
Interest expense amounted to USD 209 million compared to prior year interest expense of USD 216 million. Other financial income and expense amounted to a loss of USD 19 million compared to an income of USD 12 million in the prior year mainly due to lower interest income in the current period.
Taxes
The tax rate for continuing operations in the third quarter was 19.8% compared to 15.2% in the prior year. The third quarter tax rate was negatively impacted by the effect of legal charges.
Excluding the impact of the legal charges, the third quarter tax rate would have been 16.7% compared to 15.2% in the prior year. The increase from prior year was mainly the result of a change in profit mix.
The core tax rate for continuing operations was 16.0% compared to 16.4% in prior year.
Net income, EPS and free cash flow
Net income was USD 1.9 billion (-5%, 0% cc) as higher operating income was offset by a higher tax rate. EPS was USD 0.85 (-6%, 0% cc), in line with net income.
Core net income was USD 3.5 billion (+8%, +10% cc) mainly driven by growth in core operating income. Core EPS was USD 1.52 (+8%, +9% cc), in line with core net income.
Free cash flow from continuing operations amounted to USD 2.7 billion (-32%) compared to USD 4.0 billion in the prior year quarter. This decrease was due to lower cash flows from operating activities, including higher payments related to legal settlements.


 
 
 
 
 
 
5
 

Continuing operations nine months
Net sales
Net sales were USD 35.9 billion (+2%, +4% cc) in the first nine months mainly driven by Entresto, Zolgensma and Cosentyx. Volume contributed 9 percentage points to sales growth, partly offset by price erosion of 3 percentage points and the negative impact from generic competition of 2 percentage points.
Corporate income and expense, net
Corporate income and expense, which includes the cost of Group headquarter and coordination functions, amounted to an income of USD 51 million in the nine months, compared to an expense of USD 560 million in prior year, mainly driven by a favorable contribution from the Novartis Venture Fund, royalty settlement gain related to intellectual property rights, and lower restructuring costs.
Operating income
Operating income was USD 7.5 billion (+3%, +11% cc) mainly driven by sales growth, improved gross margin and lower spending, partly offset by higher amortization and lower divestment gains.
Core operating income was USD 11.9 billion (+12%, +16% cc) mainly driven by higher sales and improved gross margin. Core operating income margin was 33.2% of net sales, increasing by 2.8 percentage points (+3.6 percentage points cc).
Income from associated companies
Income from associated companies amounted to USD 532 million in the first nine months of 2020 compared to USD 509 million in the prior year.
The share of income from Roche was USD 535 million compared to USD 510 million in the prior year. The estimated income for Roche Holding AG, net of amortization, was USD 599 million compared to USD 596 million in the prior year. This was partly offset by the negative prior year true up of USD 64 million in the first quarter of 2020, compared to a negative prior year true up of USD 129 million recognized in the first quarter of 2019. In addition, a USD 43 million income from the revaluation of the deferred tax liability, recognized upon initial accounting for the Roche investment, was recorded in the first quarter of 2019, following a change in the enacted tax rate in February 2019, of the Swiss Canton Basel-Stadt, effective January 1, 2019.
Core income from associated companies in the first nine months of 2020 increased to USD 868 million compared to USD 844 million in prior year driven by a higher estimated core income contribution from Roche Holding AG. The core income contribution from Roche Holding AG increased to USD 871 million from USD 845 million in the prior year, driven by a higher estimated core income contribution from Roche for the current period. In addition a favorable prior year core income true up of USD 38 million was recorded in the first quarter of 2020, compared to a favorable true up of USD 32 million in the first quarter of 2019.
Interest expense and other financial income/expense
Interest expense increased to USD 668 million from USD 647 million in the prior year, mainly due to an increase in interest expense from discounting long term liabilities. Other financial income and expense amounted to a loss of USD 53 million compared to an income of USD 56 million in prior year mainly due to lower interest income for the current period.

 
 
 
 
 
 
6
 

Taxes

The tax rate for continuing operations in the first nine months was 18.4% compared to 16.2% in the prior year. The tax rate was negatively impacted by the effect of non-deductible legal settlement expenses and legal charges in the first nine months and the impact of Swiss tax reform in the prior year.
Excluding these impacts, the first nine months rate would have been 16.8% compared to 15.4% in the prior year. The increase from prior year was mainly the result of a change in profit mix.
The core tax rate for continuing operations was 16.0% compared to 16.4% in prior year.
Net income, EPS and free cash flow
Net income was USD 6.0 billion (-1%, +6% cc) as higher operating income was offset by a higher tax rate. EPS was USD 2.62 (0%, +7% cc), growing faster than net income and benefiting from lower weighted average number of shares outstanding.
Core net income was USD 10.1 billion (+11%, +15% cc) mainly driven by growth in core operating income. Core EPS was USD 4.44 (+12%, +16% cc), growing faster than core net income benefiting from lower weighted average number of shares outstanding.
Free cash flow from continuing operations amounted to USD 8.3 billion (-12%) compared to USD 9.4 billion in the prior year period, primarily as higher operating income adjusted for non-cash items was more than offset by payments related to legal settlements and lower divestment proceeds.
Discontinued operations
Discontinued operations include the business of Alcon and certain corporate costs directly attributable to Alcon up to the spin-off date. As the Alcon spin-off was completed on April 9, 2019, the first nine months of the prior year included three months of operating results of the divested business.
In the first nine months of 2020, there were no activities related to discontinued operations. In the first nine months of 2019, discontinued operations net sales were USD 1.8 billion, operating income amounted to USD 71 million and net income from discontinued operations was USD 4.6 billion, including the non-taxable non-cash net gain on distribution of Alcon Inc. to Novartis AG shareholders which amounted to USD 4.7 billion. For further details see Note 2 “Distribution of Alcon Inc. to Novartis AG shareholders”, Note 3 “Significant transactions – Completion of the spin-off of the Alcon business through a dividend in kind distribution to Novartis AG shareholders” and Note 10 “Discontinued operations”.
Total Group nine months
For the total Group, net income amounted to USD 6.0 billion compared to USD 10.6 billion in the prior year, including the non-taxable non-cash net gain on distribution of Alcon Inc. Basic earnings per share was USD 2.62 compared to USD 4.62 in prior year. Cash flow from operating activities for the total Group amounted to USD 9.6 billion and free cash flow to USD 8.3 billion.

 
 
 
 
 
 
7
 



Innovative Medicines

 
Q3 2020
Q3 2019
% change
 
9M 2020
9M 2019
% change
 
USD m
 USD m
USD
cc
 
USD m
USD m
USD
cc
Net sales
9 837
9 688
2
1
 
28 780
27 794
4
5
Operating income
1 998
2 404
-17
-11
 
6 786
7 077
-4
2
  As % of net sales
20.3
24.8
     
23.6
25.5
   
Core operating income
3 525
3 300
7
9
 
10 433
9 528
9
13
  As % of net sales
35.8
34.1
     
36.3
34.3
   

COVID-19 impacts

The pandemic continues to negatively impact demand in certain therapeutic areas, mainly in dermatology and ophthalmology. Despite this, nine months sales grew 5% (cc) with core operating income growing 13% (cc) driven by the launch uptake of Zolgensma and Piqray as well as continuing momentum on Entresto, Cosentyx, Promacta/Revolade, Kisqali, Tafinlar + Mekinist and Jakavi. Spending was lower in the second and third quarter as we implemented and embraced new ways of working, which include lower travel and meeting costs, as well as lower promotional activities.

Third quarter

Net sales
Net sales were USD 9.8 billion (+2%, +1% cc) with volume contributing 9 percentage points to growth, pricing a negative 5 percentage points and generic competition had a negative impact of 3 percentage points mainly due to Afinitor and Exjade.
In the US (USD 3.6 billion) sales were -2% versus prior year, as growth of Entresto, Cosentyx and Piqray was more than offset by generic impacts, mainly on Afinitor. In Europe (USD 3.5 billion, +8%, +5% cc) sales grew driven by continued strong performance of Entresto, Jakavi, Tafinlar + Mekinist and Kisqali. Japan sales were USD 0.6 billion (0%, -1% cc). Emerging Growth Markets grew in constant currencies (0%, +4% cc), including double digit growth in China, with the launches of Entresto and Cosentyx.
Pharmaceuticals BU sales were USD 6.1 billion (+3%, +2% cc). There was continued growth momentum from Entresto (USD 632 million, +47%, +45% cc), Zolgensma (USD 291 million, +82%, +79% cc) and Cosentyx (USD 1 012 million, +8%, +7% cc). Growth was partly offset by declines in Established Medicines and ophthalmology brands. The COVID-19 pandemic continued to negatively impact mainly ophthalmology and new patient starts in dermatology.
Oncology BU sales were broadly in line with prior year (USD 3.7 billion, 0%, -1% cc). Strong performance of Kisqali (USD 183 million, +49%, +50% cc), Promacta/Revolade (USD 442 million, +16%, +16% cc), Jakavi (USD 335 million, +20%, +18% cc), Tafinlar + Mekinist (USD 397 million, +15%, +14% cc) and Piqray (USD 83 million, +93%, +95% cc) was offset by generic competition, mainly for Afinitor and Exjade and the negative impact of the COVID-19 pandemic.
Operating income
Operating income was USD 2.0 billion (-17%, -11% cc), mainly due to higher legal provisions and higher impairments. Operating income margin was 20.3% of net sales decreasing 4.5 percentage points (-2.9 percentage points in cc).
Core adjustments were USD 1.5 billion, mainly due to USD 0.7 billion for amortization. Core adjustments increased compared to prior year mainly due to higher legal provisions and higher impairments.
Core operating income was USD 3.5 billion (+7%, +9% cc) mainly driven by COVID-19 related lower spending, productivity programs and sales growth. Core operating income margin was 35.8% of net sales, increasing 1.7 percentage points (+2.6 percentage points cc). Core gross margin was in line with prior year. Core R&D expenses as a percentage of net sales decreased by 1.2 percentage points (cc) mainly driven by productivity, portfolio prioritization and COVID-19 related spending impacts. Core SG&A
 
 
 
 
 
 
8
 

expenses declined by 1.2 percentage points (cc) benefiting from COVID-19 related spending impacts. Core Other Income and Expense net increased the margin by 0.2 percentage points (cc).
 
Nine months
 
Net sales
Net sales were USD 28.8 billion (+4%, +5% cc) with volume contributing 12 percentage points to growth, pricing a negative 4 percentage points and generic competition had a negative impact of 3 percentage points. Pharmaceuticals BU grew 4% (+6% cc) driven by Entresto (USD 1.8 billion, +47%, +48% cc), Zolgensma (USD 0.7 billion), Cosentyx (USD 2.9 billion, +12%, +12% cc) and the Xiidra acquisition. This is partly offset by declines in Lucentis and other ophthalmology products, driven mainly by lower demand due to COVID-19. Oncology BU grew 2% (+4% cc) driven by Promacta/Revolade (USD 1.3 billion, +22%, +24% cc), Kisqali (USD 0.5 billion, +55%, +59% cc), Piqray (USD 0.2 billion), Tafinlar + Mekinist (USD 1.1 billion, +15%, +17% cc) and Jakavi (USD 1.0 billion, +17%, +19% cc), partially offset by generic competition for Afinitor and Exjade.
The US (USD 10.7 billion, +6%) delivered strong performance of Zolgensma, Entresto and Cosentyx. Europe sales (USD 9.8 billion, +3%, +4% cc) grew driven by Entresto, Jakavi, Kisqali and Kymriah. Japan sales were USD 1.8 billion (0%, -2% cc). Emerging Growth Markets sales grew (+3%, +9% cc), led by double digit growth in China, including the launches of Cosentyx and Entresto.
Operating income
Operating income was USD 6.8 billion (-4%, +2% cc), mainly driven by sales growth partly offset by higher amortization, lower divestment gains and higher impairments. Operating income margin was 23.6% of net sales, decreasing 1.9 percentage points (-0.7 percentage points cc).
Core adjustments were USD 3.6 billion, mainly due to USD 2.2 billion of amortization. Core adjustments increased compared to prior year mainly due to higher amortization, lower divestment gains and higher impairments.
Core operating income was USD 10.4 billion (+9%, +13% cc) mainly driven by sales growth, lower COVID-19 related spending and improved gross margin. Core operating income margin was 36.3% of net sales, increasing 2.0 percentage points (+2.7 percentage points cc). Core gross margin increased by 0.4 percentage points (cc) mainly driven by productivity. Core R&D expenses as a percentage of net sales decreased by 1.2 percentage points (cc) mainly driven by the higher net sales, productivity, portfolio prioritization and COVID-19 related spending impacts. Core SG&A expenses declined by 1.2 percentage points (cc) benefiting from COVID-19 related spending impacts. Core Other Income and Expense net decreased the margin by 0.1 percentage points (cc).
 
 
 
 
 
9
 


ONCOLOGY BUSINESS UNIT
 
Q3 2020
Q3 2019
% change
 
9M 2020
9M 2019
% change
 
 USD m
 USD m
USD
cc
 
 USD m
 USD m
USD
cc
Tasigna
 478
 487
-2
-2
 
1 445
1 389
4
5
Promacta/Revolade
 442
 380
16
16
 
1 267
1 036
22
24
Tafinlar + Mekinist1
 397
 345
15
14
 
1 134
 982
15
17
Sandostatin
 361
 388
-7
-7
 
1 076
1 183
-9
-8
Jakavi
 335
 279
20
18
 
 963
 821
17
19
Gleevec/Glivec
 280
 320
-13
-13
 
 897
 950
-6
-4
Afinitor/Votubia
 262
 400
-35
-34
 
 824
1 174
-30
-29
Kisqali
 183
 123
49
50
 
 503
 325
55
59
Exjade/Jadenu
 162
 253
-36
-37
 
 497
 744
-33
-33
Votrient
 160
 198
-19
-19
 
 488
 578
-16
-14
Lutathera
 119
 119
0
-1
 
 336
 334
1
0
Kymriah
 122
 79
54
51
 
 333
 182
83
82
Piqray
 83
 43
93
95
 
 236
 49
nm
nm
Adakveo
 35
 
nm
nm
 
 71
 
nm
nm
Tabrecta
12
 
nm
nm
 
18
 
nm
nm
Other
 267
 301
-11
-12
 
 806
 895
-10
-9
Total Oncology business unit
3 698
3 715
0
-1
 
10 894
10 642
2
4
1 Majority of sales for Mekinist and Tafinlar are combination, but both can be used as monotherapy
nm = not meaningful
Tasigna (USD 478 million, -2%, -2% cc) sales declined in Emerging Growth Markets, Europe and Japan. The decline was partly offset by growth in the US.
Promacta/Revolade (USD 442 million, +16%, +16% cc) grew across all regions, driven by increased use in chronic immune thrombocytopenia (ITP) and as first-line treatment for severe aplastic anemia (SAA) in the US.
Tafinlar + Mekinist (USD 397 million, +15%, +14% cc), the worldwide leader in BRAF/MEK-inhibition, continued to show strong growth driven by demand in adjuvant melanoma as well as NSCLC.
Progression-free survival (PFS) results from the Phase III COMBI-i trial presented at ESMO confirmed Tafinlar + Mekinist as the standard-of-care targeted therapy for advanced BRAF-mutated melanoma, despite the investigational study not meeting its primary endpoint.
Sandostatin (USD 361 million, -7%, -7% cc) sales declined due to ongoing competitive pressure in Europe, US and Japan. The brand also continues to be impacted by generic competition in Europe.
Jakavi (USD 335 million, +20%, +18% cc) growth was driven by strong demand in the myelofibrosis and polycythemia vera indications.
Gleevec/Glivec (USD 280 million, -13%, -13% cc) declined due to increased generic competition.
Afinitor/Votubia (USD 262 million, -35%, -34% cc) declined due to generic competition in the US, Europe and Emerging Growth Markets. 
Kisqali (USD 183 million, +49%, +50% cc) continued strong growth across all geographies benefiting from the ongoing impact of positive overall survival data from two pivotal Phase III trials (MONALEESA-7 and MONALEESA-3).
Exjade/Jadenu (USD 162 million, -36%, -37% cc) declined mainly due to pressure from generic competition in the US and other regions.
Votrient (USD 160 million, -19%, -19% cc) declined due to increased competition in Europe and the US.
Lutathera (USD 119 million, 0%, -1% cc) sales were broadly in line with prior year, as the COVID-19 pandemic continued to have an impact on the brand. There are more than 360 total centers now actively treating patients. Sales from all AAA brands (including Lutathera and radiopharmaceutical diagnostic products) were USD 181 million.
Kymriah (USD 122 million, +54%, +51% cc) grew strongly in Europe, Japan and US. Coverage continues to expand, with more than 260 qualified treatment centers and 26 countries having coverage for at least one indication. At the interim analysis, the Phase II ELARA trial of Kymriah in patients with relapsed or refractory follicular lymphoma met its primary endpoint of complete response rate (CRR). The FDA granted orphan drug designation to Kymriah for the treatment of follicular lymphoma.
 
 
 
 
 
 
10
 


Piqray (USD 83 million, +93%, +95% cc) grew significantly in the US as the launch roll-out continued. Piqray in combination with fulvestrant received European Commission (EC) approval to treat HR+/HER2- advanced breast cancer with a PIK3CA mutation. Piqray is the first and only therapy specifically for the approximately 40% of HR+/HER2- advanced breast cancer patients who have a PIK3CA mutation, which is associated with poor prognosis. Piqray is now approved in 48 countries, including the US and European member states. 
Adakveo (USD 35 million) US launch continues to progress well. Payer coverage decisions in the US are expanding, including published Medicaid FFS policies or confirmation of adjudicated claims in 34 states and 88% coverage among commercial plans to date.
Tabrecta (USD 12 million) US launch progressed well. Tabrecta is the first and only therapy approved by the US FDA to specifically target metastatic NSCLC with a mutation that leads to MET exon 14 skipping (METex14), as detected by an FDA-approved test.

PHARMACEUTICAL BUSINESS UNIT

IMMUNOLOGY, HEPATOLOGY and DERMATOLOGY
 
Q3 2020
Q3 2019
% change
 
9M 2020
9M 2019
% change
 
USD m
USD m
USD
cc
 
USD m
USD m
USD
cc
Cosentyx
1 012
 937
8
7
 
2 886
2 586
12
12
Ilaris
 220
 177
24
25
 
 633
 493
28
30
Total Immunology, Hepatology and Dermatology
1 232
1 114
11
10
 
3 519
3 079
14
15
Xolair sales for all indications are reported in the Respiratory franchise
Cosentyx (USD 1 012 million, +8%, +7% cc) saw continued growth across indications despite lower new patient starts across the market in dermatology and rheumatology in most geographies due to COVID-19. In July, Cosentyx received EU approval as a first-line systemic treatment for pediatric psoriasis. Approval was based on two Phase III international studies in children and adolescents aged 6 to under 18 years. In August, Cosentyx became the first treatment approved in Japan for the treatment of non-radiographic axial spondyloarthritis (nr-axSpA). In September, Cosentyx received a positive CHMP opinion for a new 300 mg autoinjector and pre-filled syringe, which if approved would enable the 300 mg dose to be administered in a single injection.
Ilaris (USD 220 million, +24%, +25% cc) sales were driven by strong double-digit volume growth, particularly coming from the US and Europe.

OPHTHALMOLOGY

 
Q3 2020
Q3 2019
% change
 
9M 2020
9M 2019
% change
 
USD m
USD m
USD
cc
 
USD m
USD m
USD
cc
Lucentis
 515
 500
3
0
 
1 403
1 569
-11
-10
Xiidra
 99
 102
-3
-3
 
 268
 102
163
164
Beovu
 51
 
nm
nm
 
 153
 
nm
nm
Other
 487
 612
-20
-20
 
1 461
1 878
-22
-21
Total Ophthalmology
1 152
1 214
-5
-6
 
3 285
3 549
-7
-7
nm = not meaningful
Lucentis (USD 515 million, +3%, 0% cc) sales have been consistently recovering from the COVID-19 impact since May. Clinics capacity and patients load continue to slowly recover in quarter three but have not yet reached the pre-COVID-19 levels.

Xiidra (USD 99 million, -3%, -3% cc) continued to rebound during the quarter as patient volume at eye care practitioners continued to increase after significant COVID-19 disruption. Total volume accelerated growth in the third quarter vs. second quarter following a broad return to promotion, including significant expansion of direct to consumer advertising starting in July.
Beovu (USD 51 million) launch roll-out continued, with approval now in more than 45 countries. In quarter three, the EMA and CADTH approved a label update for Beovu to include additional information related to the safety signal of retinal vasculitis / retinal vascular occlusion. Updated labels are now approved in 45 countries and all the largest 10 markets. Novartis has a comprehensive program of work
 
 
 
 
 
 
11
 

underway to help support retina specialists with the latest data and shares information on a continuous basis as this becomes available.

Other ophthalmology products declined due to the negative impact of the COVID-19 pandemic and generic impacts in the US, primarily for Travatan and Ciprodex.

NEUROSCIENCE

 
Q3 2020
Q3 2019
% change
 
9M 2020
9M 2019
% change
 
USD m
USD m
USD
cc
 
USD m
USD m
USD
cc
Gilenya
 733
 829
-12
-13
 
2 243
2 420
-7
-7
Zolgensma
 291
 160
82
79
 
 666
 175
nm
nm
Mayzent
 49
 4
nm
nm
 
 113
 9
nm
nm
Aimovig
 39
 33
18
11
 
 108
 75
44
45
Other
 13
 16
-19
-12
 
 40
 46
-13
-14
Total Neuroscience
1 125
1 042
8
6
 
3 170
2 725
16
17
nm = not meaningful
Gilenya (USD 733 million, -12%, -13% cc) sales declined due to increased competition and the impact of COVID-19. Gilenya remains the top prescribed high efficacy therapy in 38 countries around the world and the only one approved to treat pediatric RMS. Novartis is in US ANDA litigations with a generic manufacturer. In August 2020, the US District Court in Delaware issued a favorable decision finding the dosage regimen patent valid and infringed, which has been appealed. In parallel, an appeal against a USPTO decision upholding the dosage regimen patent in IPR proceedings is ongoing.
Zolgensma (USD 291 million, +82%, +79% cc) delivered significant growth. Contributing factors were geographic expansion outside of the US and increased newborn screening in the US. Geographic expansion includes recent approval and formal reimbursement in Japan, as well as launch in Europe where we have already seen favorable early market access in Germany and other markets through our Day One Access initiative. Zolgensma was most recently approved in Brazil.
Mayzent (USD 49 million) continued to grow steadily. Growth is driven by fulfilling an important unmet need in patients showing signs of progression despite being on other treatments. Mayzent is the first and only oral DMT studied and proven to delay disease progression in a broad SPMS patient population. In addition to the US and EU, Mayzent is now approved in the UK, Australia, Canada, Japan and Switzerland.
Aimovig (USD 39 million ex-US, ex-Japan +18%, +11% cc) is the most prescribed anti-CGRP worldwide, with more than 480,000 patients prescribed worldwide in the post-trial setting. Aimovig is co-commercialized with Amgen in the US, where Amgen records sales. Novartis has exclusive rights and books sales in all ex-US territories excluding Japan. During the ongoing litigation between the companies the collaboration continues and will remain in force until a final court decision.
Kesimpta (ofatumumab, formerly OMB157) was launched in the US following FDA approval in August. Kesimpta is a targeted B-cell therapy that can deliver powerful and sustained high efficacy, with a favorable safety profile and the flexibility of an at home self-administration for a broad population of RMS patients. We have seen a promising start with our flexible hybrid face-to-face / digital launch. To provide access to eligible US patients while they obtain reimbursement we are providing Kesimpta free of charge for a limited amount of time. Based on our assumption on the time from initiation of therapy to reimbursement we anticipate that a majority of the sales in the first quarter of launch will be free goods and have accrued accordingly. We expect this share to decrease over time as reimbursement progresses.

CARDIOVASCULAR, RENAL AND METABOLISM

 
Q3 2020
Q3 2019
% change
 
9M 2020
9M 2019
% change
 
USD m
USD m
USD
cc
 
USD m
USD m
USD
cc
Entresto
 632
 430
47
45
 
1 781
1 208
47
48
Other
 0
 7
nm
nm
 
 1
 19
-95
-99
Total Cardiovascular, Renal & Metabolism
 632
 437
45
43
 
1 782
1 227
45
46
nm = not meaningful
 
 
 
 
 
12
 

Entresto (USD 632 million, +47%, +45% cc) sustained strong growth with increased patient share across markets, driven by demand as the essential first choice therapy for HF patients (reduced ejection fraction). Entresto was successfully launched in Japan in August. Novartis is in US ANDA litigation with generic manufacturers.

RESPIRATORY

 
Q3 2020
Q3 2019
% change
 
9M 2020
9M 2019
% change
 
USD m
USD m
USD
cc
 
USD m
USD m
USD
cc
Xolair
 320
 299
7
6
 
 916
 870
5
7
Ultibro Group
 154
 145
6
4
 
 463
 468
-1
0
Other
 6
 4
50
65
 
 16
 16
0
4
Total Respiratory
 480
 448
7
6
 
1 395
1 354
3
5
Xolair sales for all indications are reported in the Respiratory franchise
Xolair (USD 320 million, +7%, +6% cc) continued growth in the severe allergic asthma (SAA) and chronic spontaneous urticaria (CSU) indications. In July 2020, Xolair received approval from the European Commission (EC) for a new indication to treat severe chronic rhinosinusitis with nasal polyps (CRSwNP). Novartis co-promotes Xolair with Genentech in the US and shares a portion of operating income, but we do not record any US sales.
Ultibro Group (USD 154 million, +6%, +4% cc) sales grew as strong Ultibro Breezhaler sales more than offset the decline in Seebri Breezhaler and Onbrez Breezhaler.
Enerzair Group consists of Enerzair Breezhaler and Atectura Breezhaler. Enerzair Breezhaler (indacaterol / glycopyrronium bromide / mometasone, formerly known as QVM149) is an inhaled LABA/LAMA/ICS combination for patients whose asthma is uncontrolled with LABA/ICS and is approved in Europe, Japan and Canada. Novartis also launched a digital companion that provides inhalation confirmation, medication reminders and access to objective data to support therapeutic decisions. Atectura Breezhaler (indacaterol / mometasone, formerly known as QMF149) is a LABA/ICS fixed-dose combination for patients whose asthma is uncontrolled with SABA and ICS. It is approved in the EU, Japan and Canada, and has been launched to date in 4 markets.

ESTABLISHED MEDICINES
 
Q3 2020
Q3 2019
% change
 
9M 2020
9M 2019
% change
 
USD m
USD m
USD
cc
 
USD m
USD m
USD
cc
Galvus Group
 289
 320
-10
-8
 
 906
 955
-5
-2
Diovan Group
 237
 254
-7
-6
 
 779
 798
-2
1
Exforge Group
 237
 249
-5
-5
 
 733
 780
-6
-3
Zortress/Certican
 107
 122
-12
-13
 
 340
 362
-6
-5
Neoral/Sandimmun(e)
 93
 101
-8
-9
 
 290
 314
-8
-7
Voltaren/Cataflam
 91
 105
-13
-11
 
 265
 313
-15
-13
Other
 464
 567
-18
-18
 
1 422
1 696
-16
-14
Total Established Medicines
1 518
1 718
-12
-11
 
4 735
5 218
-9
-7

Galvus Group (USD 289 million, -10%, -8% cc) declined primarily due to generic competition in India, as well as price reduction and inventory transfer cycle related to our co-promotion in Japan.
Diovan Group (USD 237 million, -7%, -6% cc) declined mainly due to generic competition.
Exforge Group (USD 237 million, -5%, -5% cc) declined in Europe due to generic competition, partly offset by growth in Emerging Growth markets.
Zortress/Certican (USD 107 million, -12%, -13% cc) declined mainly due to generic competition in the US.
Neoral/Sandimmun(e) (USD 93 million, -8%, -9% cc) declined mainly due to generic competition and mandatory price reductions.
Voltaren/Cataflam (USD 91 million, -13%, -11% cc) declined mainly due to generic competition and external supply issues following the COVID-19 pandemic.
 
 
 
 
 
 
13
 



Sandoz

 
Q3 2020
Q3 2019
% change
 
9M 2020
9M 2019
% change
 
USD m
USD m
USD
cc
 
USD m
USD m
USD
cc
Net sales
2 422
2 484
-2
-3
 
7 109
7 248
-2
0
Operating income
395
191
107
113
 
671
746
-10
-1
  As % of net sales
16.3
7.7
     
9.4
10.3
   
Core operating income
658
615
7
8
 
1 806
1 577
15
19
  As % of net sales
27.2
24.8
     
25.4
21.8
   
                   

COVID-19 impacts

Quarter three sales were impacted by ongoing disruption to hospitals and HCP practices, which limited patient access to treatments for our Retail business across regions. The Anti-Infectives segment was also impacted by a weaker cough and cold season likely due to COVID-19. Despite this, nine month sales were in line with prior year (cc) and core operating income grew 19% (cc). Spending was lower in all quarters as we implemented and embraced new ways of working, which include lower travel and meeting costs, as well as lower promotional activities.

Third quarter
Net sales

Sandoz net sales were USD 2.4 billion (-2%, -3% cc) in the third quarter with a volume decline of 1 percentage point (cc). There was a negative price effect of 2 percentage points (cc), despite the benefit from off-contract sales and favorable revenue deduction adjustments. Excluding the US, net sales grew (+3%, +2% cc).
Sales in Europe were USD 1.3 billion (0%, -2% cc), impacted by the slower retail recovery. Sales in the US were USD 547 million (-16%), driven by the continued oral solids decline including partnership terminations as well as by more US first-to-market launches in the prior year. Sales in Asia / Africa / Australasia were USD 385 million (+16%, +14% cc) including the contribution from the Aspen Japan acquisition. Sales in Canada and Latin America were USD 192 million (-4%, +6% cc).
Global sales of Biopharmaceuticals (biosimilars, biopharmaceutical contract manufacturing and Glatopa) grew to USD 498 million (+16%, +13% cc), driven by continued strong double-digit growth in Europe from Hyrimoz (adalimumab), Erelzi (etanercept) and Zessly (infliximab) and growth from Omnitrope (somatropin) across all regions. Launch roll-outs in other geographies also contributed to growth.
Retail sales were USD 1.8 billion (-6%, -6% cc), mainly impacted by the continued decline of US oral solids and COVID-19 related worldwide disruption, particularly in Europe. Total Anti-Infectives franchise sales were USD 266 million (-17%, -18% cc), including finished dosage forms sold under the Sandoz name (USD 154 million, -22%, -22% cc). Anti-Infectives sold to third parties for sale under their own name (USD 112 million, -10%, -13% cc) were impacted by a planned contract discontinuation.
Operating income
Operating income was USD 395 million (+107%, +113% cc), mainly driven by lower restructuring expenses, lower legal settlement provisions, continued gross margin improvements and lower spending. Operating income margin increased by 9.2 percentage points in constant currencies; currency had a negative impact of 0.6 percentage points, resulting in a net increase of 8.6 percentage points to 16.3% of net sales.
Core adjustments were USD 263 million, including USD 67 million of amortization. Prior year core adjustments were USD 424 million. The change in core adjustments compared to prior year was driven by lower net restructuring expenses from the Sandoz transformation and lower net legal provisions.
Core operating income was USD 658 million (+7%, +8% cc) as gross margin improvements and lower spending linked to COVID-19 and cost discipline were partly offset by sales decline. Core operating
 
 
 
 
 
14
 

income margin improved by 2.8 percentage points in constant currencies, currency had a negative impact of 0.4 percentage points, resulting in a net increase of 2.4 percentage points to 27.2% of net sales. Core gross margin as a percentage of net sales increased by 2.6 percentage points (cc), driven by favorable product and geographic mix, ongoing productivity improvements and lower price effect. Core R&D expenses increased by 0.6 percentage points (cc) driven by biosimilars pipeline investments. Core SG&A expenses decreased by 1.1 percentage points (cc). Core Other Income and Expense increased by 0.3 percentage points (cc), mainly due to higher IP litigation expenses.

Nine months
Net sales
Net sales were USD 7.1 billion (-2%, 0% cc) with volume growth of 2 percentage points (cc). There was a negative price effect of 2 percentage points (cc), despite the benefit from off-contract sales and favorable revenue deduction adjustments. Excluding the US, net sales grew (+2%, +4% cc).
Sales in Europe were USD 3.9 billion (+1%, +2% cc). Sales in the US were USD 1.6 billion (-14%), due to the continued volume decline in oral solids including partnership terminations as well as by more US first-to-market launches in the prior year. Sales in Asia / Africa / Australasia were USD 1.1 billion (+8%, +8% cc) including the contribution from the Aspen Japan acquisition. Sales in Canada and Latin America were USD 568 million (0%, +10% cc).
Global sales of Biopharmaceuticals (biosimilars, biopharmaceutical contract manufacturing and Glatopa) grew to USD 1.4 billion (+20%, +20% cc), driven by continued strong double-digit growth in Europe from Hyrimoz (adalimumab), Erelzi (etanercept) and Zessly (infliximab) and growth from Omnitrope (somatropin) across all regions. Launch roll-outs in other geographies also contributed to growth.
Retail sales were USD 5.4 billion (-6%, -4% cc) impacted by the declines in the US and COVID-19 related disruption across regions. Total Anti-Infectives franchise sales were USD 848 million (-13%, -11% cc) including finished dosage forms sold under the Sandoz name (USD 510 million, -13%, -11% cc) and Anti-Infectives sold to third parties for sale under their own name (USD 338 million, -12%, -12% cc), which were impacted by a planned contract discontinuation.
Operating income
Operating income was USD 671 million (-10%, -1% cc), mainly due to higher legal provisions mostly offset by gross margin improvements and lower spending linked to COVID-19 and cost discipline. Operating income margin decreased 0.1 percentage point in constant currencies; currency had a negative impact of 0.8 percentage points, resulting in a net decrease of 0.9 percentage points to 9.4% of net sales.
Core adjustments were USD 1.1 billion, including USD 0.3 billion of amortization and USD 0.4 billion legal provision. Prior year core adjustments were USD 0.8 billion. The change in core adjustments compared to prior year was mainly due to higher net legal provisions.
Core operating income was USD 1.8 billion (+15%, +19% cc), driven by gross margin improvements and lower spending linked to COVID-19 and cost discipline. Core operating income margin was 25.4% of net sales, increasing 3.6 percentage points (4.2 percentage points cc). Core gross margin increased by 2.4 percentage points (cc), driven by favorable product and geographic mix along with ongoing productivity improvements and lower price erosion. Core R&D expenses increased by 0.3 percentage points (cc) driven by biosimilars pipeline investments. Core SG&A expenses decreased by 1.8 percentage points (cc). Core Other Income and Expense decreased by 0.3 percentage points (cc), mainly driven by lower net IP litigation expenses.
 
 
 
 
 
15
 

GROUP CASH FLOW AND BALANCE SHEET

Cash flow

Third quarter

Net cash flows from operating activities from continuing operations amounted to USD 3.2 billion, compared to USD 4.6 billion in the prior year quarter. This decrease was mainly due to higher provision payments related to legal settlements and unfavorable working capital.
Net cash flows used in investing activities from continuing operations amounted to USD 2.0 billion, compared to USD 3.4 billion in the prior year quarter.
The current year quarter cash outflows were driven by USD 1.5 billion net purchases of marketable securities and commodities. Cash outflows for acquisitions and divestments of businesses, net amounted to USD 0.1 billion. Net other cash outflows of USD 0.4 billion were driven by the purchase of property, plant and equipment, intangible assets, financial assets and other non-current assets of USD 0.6 billion, partly offset by cash inflows of USD 0.2 billion mainly from the sale of financial assets and intangible assets.
In the prior year quarter, net cash outflows of USD 3.4 billion used in investing activities from continuing operations were driven by USD 3.5 billion for the acquisitions and divestments of businesses, net (including the acquisition of Xiidra from Takeda Pharmaceutical Company Limited for USD 3.5 billion). Net other cash inflows of USD 0.1 billion were driven by the sale of financial assets (including USD 0.5 billion proceeds from the sale of Alcon Inc. shares) and intangible assets of USD 0.7 billion, partly offset by cash outflows of USD 0.6 billion for the purchase of property, plant and equipment, intangible assets, financial assets and other non-current assets.
Net cash inflows from financing activities from continuing operations amounted to USD 1.9 billion, compared to net cash outflows of USD 2.7 billion in the prior year quarter.
The current year quarter includes cash inflows of USD 2.2 billion from the increase in non-current financial debts, mainly consisting of USD 2.1 billion from the issuance of a sustainability-linked bond denominated in euro (notional amount of EUR 1.85 billion) and cash inflows of USD 0.7 billion from the net increase in current financial debts. These cash inflows were partly offset by cash outflows of USD 0.9 billion for net treasury share transactions and USD 0.1 billion net payments for lease liabilities.
In the prior year quarter, net cash flows used in financing activities from continuing operations of USD 2.7 billion mainly included the cash outflows for net treasury share transactions of USD 2.9 billion (mainly related to the up-to USD 5 billion share buyback), net payments for lease liabilities of USD 0.1 billion, partly offset by a net increase in financial debts of USD 0.3 billion.
Free cash flow from continuing operations amounted to USD 2.7 billion (-32%) compared to USD 4.0 billion in the prior year quarter. This decrease was due to lower cash flows from operating activities, including higher payments related to legal settlements.
Nine months
Net cash flows from operating activities from continuing operations amounted to USD 9.6 billion, compared to USD 10.0 billion in the prior year period. Higher net income adjusted for non-cash items
 
 
 
 
 
 
16
 

and other adjustments, including divestment gains, was more than offset by higher provision payments related to legal settlements and unfavorable working capital.

Net cash outflows used in investing activities from continuing operations amounted to USD 12.5 billion, compared to USD 1.4 billion in the prior year period.
The current year period cash outflows were driven by the USD 10.0 billion used for the acquisitions and divestments of businesses, net (including the acquisition of The Medicines Company for USD 9.5 billion, net of cash acquired USD 0.1 billion, and the acquisition of Japanese business of Aspen Global Incorporated for USD 0.3 billion). Net purchases of marketable securities and commodities amounted to USD 1.4 billion. Net other cash outflows of USD 1.1 billion were driven by the purchase of property, plant and equipment, intangible assets, financial assets and other non-current assets of USD 1.8 billion, partly offset by cash inflows of USD 0.7 billion from the sale of financial assets (including the USD 0.2 billion proceeds from the sale of Alcon Inc. shares) and intangible assets.
In the prior year period, net cash outflows of USD 1.4 billion used in investing activities from continuing operations were driven by USD 3.8 billion for the acquisitions and divestments of businesses, net (including the acquisition of Xiidra from Takeda Pharmaceutical Company Limited for USD 3.5 billion and the acquisition of IFM Tre, Inc. for USD 0.3 billion). Net proceeds from the sale of marketable securities and commodities amounted to USD 2.3 billion. Net other cash inflows of USD 0.1 billion were driven by the sale of property, plant and equipment (including the proceeds from the sale and leaseback of real estate), financial assets (including USD 0.7 billion proceeds from the sale of Alcon Inc. shares), intangible assets and other non-current assets of USD 2.0 billion, partly offset by cash outflows of USD 1.9 billion for the purchase of property, plant and equipment, intangible assets, financial assets and other non-current assets.
Net cash flows used in investing activities from discontinued operations amounted to USD 0.1 billion compared to USD 1.1 billion in the prior year period. The current year period includes payments related to the portfolio transformation transactions and payments attributable to the spin-off of the Alcon business. The prior year period includes mainly the cash outflow for the acquisition of PowerVision, Inc. of USD 0.3 billion and USD 0.6 billion due to the derecognized cash and cash equivalent following the completion of Alcon spin-off, on April 9, 2019.
Net cash inflows from financing activities from continuing operations amounted to USD 0.8 billion, compared to net cash outflows of USD 15.7 billion in the prior year period.
The current year period includes cash inflows of USD 7.1 billion from the increase in non-current financial debts, mainly consisting of USD 4.9 billion from issuance of bonds denominated in US dollars (notional amount of USD 5.0 billion) and USD 2.1 billion from the issuance of a sustainability-linked bond denominated in euro (notional amount of EUR 1.85 billion) and cash inflows of USD 3.2 billion from the net increase in current financial debts. These cash inflows were partly offset by cash outflows of USD 7.0 billion for the dividend payment, USD 2.0 billion for the repayment of two US dollar bonds at maturity, USD 0.2 billion net payments for lease liabilities, USD 0.2 billion for net treasury share transaction and USD 0.1 billion for other financing cash outflows, net.
In the prior year period, net cash flows used in financing activities from continuing operations of USD 15.7 billion mainly included the cash outflows of USD 6.6 billion for the dividend payment, USD 5.3 billion for the net treasury share transactions (mainly related to the up-to USD 5 billion share buyback) and net cash outflows of USD 3.1 billion for non-current financial debts (mainly driven by the repayment at
 
 
 
 
 
17
 

maturity of a US dollar bond of USD 3.0 billion). The net repayments of current financial debts amounted to USD 0.5 billion. Payment for lease liabilities, net resulted in a net cash outflow of USD 0.2 billion.
 
Net cash inflows from financing activities from discontinued operations in the prior year period amounted to USD 3.3 billion, which included mainly the cash inflows of USD 3.5 billion from Alcon borrowings, partly offset by USD 0.2 billion payments for transaction costs.
Free cash flow from continuing operations amounted to USD 8.3 billion (-12%) compared to USD 9.4 billion in the prior year period, primarily as higher operating income adjusted for non-cash items was more than offset by payments related to legal settlements and lower divestment proceeds.
Balance sheet
In December 31, 2019, the assets and liabilities of the Sandoz US generic oral solids and dermatology businesses were reported as current assets and liabilities held for sale in the consolidated balance sheet. Novartis decided to retain the Sandoz US generic oral solids and dermatology businesses in March 2020, after mutual agreement with Aurobindo to terminate the transaction. This decision was taken as approval from the U.S. Federal Trade Commission for the transaction was not obtained within the agreed timelines. As such, these assets and liabilities are reclassified to their respective consolidated balance sheet lines as from March 31, 2020, the prior year consolidated balance sheet is not restated (see Notes 2 and 3).
Assets
Total non-current assets of USD 100.7 billion at September 30, 2020, increased by USD 11.8 billion compared to December 31, 2019. Intangible assets other than goodwill increased by USD 8.1 billion mainly due to the acquisitions of The Medicines Company and of the Japanese business of Aspen Global Incorporated, net additions, favorable currency translation adjustments and the reclassification of the intangible assets of the disposal group held for sale of USD 0.3 billion, partially offset by amortization and impairments. Goodwill increased by USD 3.0 billion and deferred tax assets by USD 0.6 billion mainly due to the acquisition of The Medicines Company and favorable currency translation adjustments. Property, plant and equipment decreased by USD 0.4 billion, as the increase due to net additions, the reclassification of the property, plant and equipment of the disposal group held for sale of USD 0.1 billion and favorable currency translation adjustments were more than offset by depreciation and impairments. Right-of-use assets were broadly in line with December 31, 2019. Investments in associated companies increased by USD 0.4 billion primarily due to favorable currency translation adjustments, as income from associated companies was largely offset by dividends received. Other non-current assets increased by USD 0.1 billion mainly due to an increase in the prepaid benefit costs of USD 0.1 billion resulting from actuarial gains, primarily from a valuation impact on plan assets, partly offset by changes in discount rates used to calculate the actuarial defined benefit obligations.
Total current assets of USD 29.0 billion at September 30, 2020, decreased by USD 0.5 billion compared to December 31, 2019. Marketable securities, commodities, time deposits, and derivative financial instruments increased by USD 1.5 billion, mainly due to investment of a portion of the September 16, 2020 issuance of the euro denominated sustainability-linked bond. Inventories increased by USD 1.2 billion, which includes USD 0.2 billion from the reclassification of the inventory of the disposal group held for sale. Cash and cash equivalents and trade receivables decreased by USD 2.1 billion and USD 0.2 billion respectively. Other current assets and income tax receivables remained broadly in line with December 31, 2019.
Liabilities
Total non-current liabilities of USD 43.3 billion increased by USD 8.7 billion compared to December 31, 2019. Long-term financial debts increased by USD 6.1 billion, mainly driven by the issuance of a euro denominated sustainability-linked bond for a notional amount of EUR 1.85 billion (USD 2.2 billion), and the issuance of US dollar denominated bonds for a notional amount of USD 5.0 billion. This was partly offset by the reclassification from non-current to current financial debt of a EUR 1.25 billion (USD 1.4

 
 
 
 
 
18
 

billion) bond due in 2021. Deferred tax liabilities increased by USD 1.6 billion mainly due to the acquisition of The Medicines Company. Provisions and other non-current liabilities increased by USD 1.0 billion, primarily from a USD 0.8 billion increase in defined benefit pension plans and other post-employment benefits liabilities, mainly due to USD 0.6 billion actuarial losses primarily from changes in discount rates used to calculate the actuarial defined benefit obligations, partly offset by a valuation impact on plan assets. Lease liabilities were broadly in line compared to December 31, 2019.
 
Total current liabilities of USD 31.8 billion increased by USD 3.6 billion compared to December 31, 2019. Financial debts and derivative financial instruments increased by USD 2.7 billion, due to the reclassification from non-current to current financial debt of a EUR 1.25 billion (USD 1.4 billion) bond due in 2021 and higher short-term borrowings, partly offset by the repayment at maturity of two US dollar bonds totaling USD 2.0 billion. Provisions and other current liabilities increased by USD 1.1 billion mainly due to a USD 0.9 billion treasury share repurchase obligation under a share buyback trading plan. Current income tax liabilities increased by USD 0.5 billion. Trade payables decreased by USD 0.7 billion. Lease liabilities were broadly in line compared to December 31, 2019.
Group equity
The Group’s equity decreased by USD 1.0 billion to USD 54.6 billion at September 30, 2020 compared to December 31, 2019. This decrease was mainly due to the cash-dividend payment of USD 7.0 billion, purchase of treasury shares of USD 1.5 billion, increase in the treasury share repurchase obligation under a share buyback trading plan of USD 0.9 billion and net actuarial losses of USD 0.5 billion. This was partially offset by net income of USD 6.0 billion, the net effect of the exercise of options and employee transactions of USD 0.8 billion, equity-based compensation of USD 0.6 billion and favorable currency translation differences of USD 1.5 billion.
Net debt and debt/equity ratio
The Group’s liquidity amounted to USD 10.9 billion at September 30, 2020, compared to USD 11.4 billion at December 31, 2019. Total non-current and current financial debts, including derivatives, amounted to USD 36.2 billion at September 30, 2020, compared to USD 27.4 billion at December 31, 2019. The debt/equity ratio increased to 0.66:1 at September 30, 2020, compared to 0.49:1 at December 31, 2019. The net debt increased to USD 25.4 billion at September 30, 2020, compared to USD 15.9 billion at December 31, 2019.
Group liquidity
We continuously track our liquidity positions and assets / liabilities profile. We have a strong balance sheet and related funding capabilities to meet our funding needs. The Group has not experienced liquidity or cash flow disruptions during the first nine months of 2020 due to COVID-19 pandemic, and maintains a cash and cash equivalents position of USD 9.0 billion as at September 30, 2020. We believe that our strong credit rating allows for continued access to short term funding in the US commercial paper market. The Group further has a committed credit facility of USD 6.0 billion as a backstop for the US commercial paper program, which was undrawn as of September 30, 2020, providing a further source of liquidity if needed. Novartis is well positioned to meet its ongoing financial obligations and has sufficient liquidity to support our normal business activities.

 
 
 
 
 
19
 

Innovation Review

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

Selected Innovative Medicines approvals: US, EU and Japan in Q3
Product
Active ingredient/
Descriptor
Indication
Region
Cosentyx
secukinumab
Non-radiographic axial spondyloarthritis
JP – Aug
Kesimpta
ofatumumab
relapsing multiple sclerosis
US – Aug
Piqray
alpelisib
PIK3CA mutant HR+, HER2 (-) postmenopausal adv BC 2nd line (+fulvestrant)
EU – Jul
Xolair
omalizumab
Nasal Polyps
EU – Aug

Selected Innovative Medicines projects awaiting regulatory decisions
   
Completed submissions
 
Product
Indication
US
EU
Japan
News update
Entresto
Chronic heart failure with preserved ejection fraction
Q2 2020
   
- Filing accepted by FDA in June 2020
Leqvio
(Inclisiran)
Hyperlipidemia
Q4 2019
Q1 2020
 
- Phase III ORION-10 and -11 showed highly consistent efficacy, tolerability and safety profile over 17 months on twice-yearly subcutaneous dosing
- Positive CHMP opinion received in October 2020
OMB157
(Kesimpta in US)
Relapsing Multiple Sclerosis
Approved
Q1 2020
Q3 2020
- Phase III ASCLEPIOS trials showed newly diagnosed, treatment-naïve patients experienced reductions in annualized relapse rates, MRI lesion activity and reductions in time to disability worsening
SEG101
(Adakveo in US)
Sickle cell disease
Approved
Q2 2019
 
- Positive CHMP opinion received in July 2020
Xolair
Nasal polyps
Q3 2019
Approved
 
- EC approval in August 2020


Selected Innovative Medicines pipeline projects
Project/ Compound
Potential indication/ Disease area
First planned submissions
Current Phase
News update
ABL001
(asciminib)
Chronic myeloid leukemia 3rd  line
2021
III
- Fast Track Designation granted by FDA
- Orphan Designation EMA
- ASCEMBL Phase III study met its primary endpoint of statistically significant superiority vs. bosutinib in major molecular response rate at 24 weeks
ACZ885
(canakinumab)
Adjuvant NSCLC
2023
III
- Enrollment ongoing
NSCLC, 1st line
2021
III
- Enrollment complete
- Depending on timing of final read-out, submission may move to early 2022
NSCLC, 2nd line
2021
III
- Enrollment complete
Aimovig
Pediatric migraine
≥2024
III
 
AVXS-101
Spinal Muscular Atrophy
(IT formulation)
tbc based on FDA feedback
III
- The FDA has acknowledged the potential of AVXS-101 IT in this patient population and recommends a pivotal confirmatory study to


 
 
 
 
 
 
20
 

Project/ Compound
Potential indication/ Disease area
First planned submissions
Current Phase
News update
supplement the existing STRONG data and further support the regulatory submission for AVXS-101 IT
AVXS-201
Rett syndrome
≥2024
I
- In 2019 the IND application was withdrawn and additional preclinical studies were initiated to support a revised data package
Beovu
Diabetic macular edema
2021
III
- Phase III KITE study achieved its primary endpoint of non-inferiority to aflibercept 2mg
Retinal vein occlusion
2023
III
Diabetic retinopathy
2023
III
BYL719
(alpelisib)
PROS (PIK3CA-related overgrowth spectrum)
2021
II
- Planned US filing based on RWE data
- Approx. 6 months delay from Q4 2020 due to COVID constraints
HER2+ adv breast cancer
≥2024
III
- Approx. 6 months delay due to COVID constraints
Triple negative breast cancer
2023
III
- Trial enrolled first patient in June 2020
Head and neck squamous cell carcinoma 2L/3L
≥2024
III
 
Ovarian Cancer
2023
III
 
CEE321
Atopic dermatitis
≥2024
I
 
CFZ533
(iscalimab)
Renal Tx
2023
II
 
Liver Tx
≥2024
II
 
Sjögren’s syndrome
≥2024
II
 
Coartem
Malaria uncomplicated, <5kg patients
≥2024
III
 
Cosentyx
Hidradenitis suppurativa
2022
III
 
 
 Ankylosing spondylitis head-to-head vs. adalimumab
2022
III
 
 
Axial spondyloarthritis IV regimen
2022
III
 
 
Giant cell arteritis
≥2024
II
 
 
Lichen Planus
≥2024
II
- Phase II Study PRELUDE (NCT04300296) started
 
Lupus Nephritis
≥2024
III
- Phase III Study SELUNE (NCT04181762) started
CPK850
Retinitis pigmentosa
≥2024
II
 
CSJ117
Asthma
≥2024
II
- Phase IIb study (NCT04410523) started
ECF843
Dry eye
2023
II
 
Entresto
Post-acute myocardial infarction
2021
III
 
Jakavi
Acute graft-versus-host disease (GvHD)
2021
III
 
Chronic GvHD
2021
III
- REACH-3 trial demonstrated superior overall response rate in patients with chronic GvHD compared to best available therapy. Study also met key secondary endpoints, significantly improving failure-free survival and patient-reported symptoms
KAE609
(cipargamin)
Malaria uncomplicated
≥2024
II
 
Malaria severe
≥2024
II
 
KAF156
Malaria uncomplicated
≥2024
II
 
 
 
 
 
 
 
21
 

Project/ Compound
Potential indication/ Disease area
First planned submissions
Current Phase
 
News update
(ganaplacide)        
Kisqali
+ endocrine therapy
HR+/HER2- early BC (adjuvant)
2023
III
- Protocol amendment to increase sample size (4000->5000) pushes expected final analysis (event-driven trial) to end 2022, and submission to 2023
Leqvio
(Inclisiran)
Secondary prevention of cardiovascular events in patients with elevated levels of LDLC
≥2024
III
 
Kymriah
(tisagenlecleucel)
r/r Follicular lymphoma
2021
II
- ELARA trial demonstrated clinically meaningful benefit in patients with relapsed or refractory (r/r) follicular lymphoma (FL) as measured by complete response rate
r/r DLBCL in 1st relapse
2021
III
 
+ pembrolizumab
r/r DLBCL
≥2024
II
 
LJC242
(tropifexor + cenicriviroc)
Non-alcoholic steatohepatitis (NASH)
≥2024
II
 
LJN452
(tropifexor)
Non-alcoholic steatohepatitis (NASH)
≥2024
II
- FDA Fast Track designation
LMI070
(branaplam)
 
Spinal Muscular Atrophy
≥2024
II
- FDA, EMA Orphan designation received
- Dose ranging study ongoing
 
Huntington’s disease
≥2024
I
- FDA Orphan designation received
LNA043
Osteoarthritis
≥2024
II
 
LNP023
(iptacopan)
Paroxysmal nocturnal hemoglobinuria
2023
II
- Positive results from Phase II study presented at EBMT
- FDA, EMA Orphan designation received
IgA nephropathy
2023
II
- EMA Orphan designation received
Membranous nephropathy
≥2024
II
 
C3 glomerulopathy
2023
II
- FDA, EMA Orphan designation received
- EU PRIME designation received
- Positive results from Phase II study presented at American Society of Nephrology
 
Atypical haemolytic uraemic syndrome
2023
II
 
LOU064
(remibrutinib)
Chronic Spontaneous Urticaria / Chronic Idiopathic Urticaria
≥2024
II
- Readout expected in 2021
 
Sjögren’s syndrome
≥2024
II
 
Lutathera
GEP-NET 1L G3
2023
III
 
177Lu-PSMA-617
Metastatic castration-resistant prostate cancer
2021
III
- Event-driven trial; readout expected in H1 2021
177Lu-PSMA-R2
Prostate cancer
≥2024
I
 
177Lu-NeoB
Multiple Solid Tumors
≥2024
I
 
LXE408
Visceral leishmaniasis
≥2024
II
 
MBG453
(sabatolimab)
Myelodysplastic syndrome
2021
III
- Study initiated in June 2020
 
Unfit AML
≥2024
II
- Study initiated in September 2020
PDR001 + Tafinlar + Mekinist
Metastatic BRAF V600+ melanoma
NA
III
- COMBI-i Phase III study did not meet its primary endpoint
- Efficacy data achieved in the control arm among patients treated with Tafinlar + Mekinist represent the longest progression-free
 
 
 
 
 
 
22
 

Project/ Compound
Potential indication/ Disease area
First planned submissions
Current Phase
 
News update
        survival results (PFS) observed across multiple Phase III studies
PDR001 Combo
Malignant melanoma
≥2024
II
- Enrollment ongoing
QBW251
COPD
≥2024
II
- Phase IIb recruitment ongoing
QGE031
(ligelizumab)
Chronic Spontaneous Urticaria / Chronic
Idiopathic Urticaria
2022
III
- Enrollment completed
- Submission delayed by 5 months due to COVID 19
SAF312
Chronic ocular surface pain
≥2024
II
 
Tabrecta
(capmatinib)
Solid Tumors
≥2024
II
 
TQJ230
(pelacarsen)
Secondary prevention of cardiovascular events in patients with elevated levels of lipoprotein(a)
≥2024
III
- Enrollment ongoing
- FDA Fast Track granted
UNR844
Presbyopia
≥2024
II
 
VAY736
(ianalumab)
Auto-immune hepatitis
≥2024
II
 
Sjögren’s syndrome
≥2024
II
- FDA Fast Track designation
VPM087
(gevokizumab)
1st line colorectal cancer
≥2024
I
 
Xolair
Food Allergy
2022
III
 
         

Selected Sandoz approvals and pipeline projects
Project/ Compound
Potential indication/
Disease area
News update
GP2411 (denosumab)
Osteoporosis, skeletal-related in bone met. pts (same as originator)
- In Phase III
- First patient enrolled July 2019
Insulin glargine, lispro, aspart
Diabetes
- Collaboration with Gan & Lee
natalizumab
Multiple sclerosis and Crohn’s disease
- Collaboration Polpharma Biologics
trastuzumab
HER2-positive cancer tumors
- Collaboration EirGenix
 
 
 
 
 
 
23
 

Condensed interim consolidated financial statements

Consolidated income statements
Third quarter (unaudited)
(USD millions unless indicated otherwise)
Note
Q3 2020
Q3 2019
Net sales to third parties from continuing operations
9
12 259
12 172
Other revenues
9
279
310
Cost of goods sold
-3 753
-3 776
Gross profit from continuing operations
8 785
8 706
Selling, general and administration
-3 419
-3 549
Research and development
-2 146
-2 199
Other income
406
196
Other expense
-1 214
-796
Operating income from continuing operations
2 412
2 358
Income from associated companies
226
253
Interest expense
-209
-216
Other financial income and expense
-19
12
Income before taxes from continuing operations
2 410
2 407
Taxes
-478
-366
Net income from continuing operations
1 932
2 041
Net income
1 932
2 041
Attributable to:
Shareholders of Novartis AG
1 935
2 042
Non-controlling interests
-3
-1
Weighted average number of shares outstanding – Basic (million)
2 285
2 272
Basic earnings per share from continuing operations (USD) 1
0.85
0.90
Total basic earnings per share (USD) 1
0.85
0.90
Weighted average number of shares outstanding – Diluted (million)
2 302
2 297
Diluted earnings per share from continuing operations (USD) 1
0.84
0.89
Total diluted earnings per share (USD) 1
0.84
0.89
 1  Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.
24

Consolidated income statements
Nine months to September 30 (unaudited)
(USD millions unless indicated otherwise)
Note
9M 2020
9M 2019
Net sales to third parties from continuing operations
9
35 889
35 042
Sales to discontinued segment
53
Net sales from continuing operations
35 889
35 095
Other revenues
9
979
866
Cost of goods sold
-10 904
-10 433
Gross profit from continuing operations
25 964
25 528
Selling, general and administration
-10 273
-10 464
Research and development
-6 647
-6 549
Other income
1 099
1 388
Other expense
-2 635
-2 640
Operating income from continuing operations
7 508
7 263
Income from associated companies
532
509
Interest expense
-668
-647
Other financial income and expense
-53
56
Income before taxes from continuing operations
7 319
7 181
Taxes
-1 347
-1 163
Net income from continuing operations
5 972
6 018
Net loss from discontinued operations before gain on distribution of Alcon Inc.
to Novartis AG shareholders

10


-101
Gain on distribution of Alcon Inc. to Novartis AG shareholders
3, 10
4 691
Net income from discontinued operations
4 590
Net income
5 972
10 608
Attributable to:
Shareholders of Novartis AG
5 978
10 607
Non-controlling interests
-6
1
Weighted average number of shares outstanding – Basic (million)
2 282
2 298
Basic earnings per share from continuing operations (USD) 1
2.62
2.62
Basic earnings per share from discontinued operations (USD) 1
2.00
Total basic earnings per share (USD) 1
2.62
4.62
Weighted average number of shares outstanding – Diluted (million)
2 300
2 323
Diluted earnings per share from continuing operations (USD) 1
2.60
2.59
Diluted earnings per share from discontinued operations (USD) 1
1.98
Total diluted earnings per share (USD) 1
2.60
4.57
 1  Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.  
25

Consolidated statements of comprehensive income
Third quarter (unaudited)
(USD millions)
Q3 2020
Q3 2019
Net income
1 932
2 041
Other comprehensive income to be eventually recycled into the consolidated income statement:
Novartis share of other comprehensive income recognized by associated companies, net of taxes
-44
-40
Net investment hedge
-97
81
Currency translation effects
1 111
-700
Total of items to eventually recycle
970
-659
Other comprehensive income never to be recycled into the consolidated income statement:
Actuarial losses from defined benefit plans, net of taxes
-189
-418
Fair value adjustments on equity securities, net of taxes
-53
-99
Total of items never to be recycled
-242
-517
Total comprehensive income
2 660
865
Attributable to:
Shareholders of Novartis AG
2 663
868
Continuing operations
2 663
868
Non-controlling interests
-3
-3
  
Nine months to September 30 (unaudited)
(USD millions)
9M 2020
9M 2019
Net income
5 972
10 608
Other comprehensive income to be eventually recycled into the consolidated income statement:
Fair value adjustments on debt securities, net of taxes
1
Fair value adjustments on deferred cash flow hedges, net of taxes
1
Total fair value adjustments on financial instruments, net of taxes
2
Novartis share of other comprehensive income recognized by associated companies, net of taxes
-56
-94
Net investment hedge
-98
93
Currency translation effects 1
1 493
-511
Total of items to eventually recycle
1 339
-510
Other comprehensive income never to be recycled into the consolidated income statement:
Actuarial losses from defined benefit plans, net of taxes 2
-482
-1 308
Fair value adjustments on equity securities, net of taxes
46
-25
Total of items never to be recycled
-436
-1 333
Total comprehensive income
6 875
8 765
Attributable to:
Shareholders of Novartis AG
6 882
8 766
Continuing operations
6 882
4 189
Discontinued operations
4 577
Non-controlling interests
-7
-1
 1  In 2019, cumulative currency translation gains of USD 123 million were recycled into the consolidated income statement as a result of the Alcon spin-off (see Notes 2, 3 and 10).
 2  Included in 2019 is a USD -358 million impact related to the revaluation of deferred tax assets on Swiss pension plans that were previously recognized through other comprehensive income. This revaluation resulted from the Swiss canton Basel-Stadt tax reform, enacted in February 2019.
26

Consolidated balance sheets

(USD millions)


Note
Sep 30,
2020
(unaudited)
Dec 31,
2019
(audited)
Assets
Non-current assets
Property, plant and equipment
9
11 711
12 069
Right-of-use assets
1 626
1 677
Goodwill
9
29 532
26 524
Intangible assets other than goodwill
9
36 883
28 787
Investments in associated companies
9 044
8 644
Deferred tax assets
8 500
7 909
Financial assets
2 559
2 518
Other non-current assets
850
738
Total non-current assets
100 705
88 866
Current assets
Inventories
7 136
5 982
Trade receivables
8 073
8 301
Income tax receivables
226
254
Marketable securities, commodities, time deposits and derivative financial instruments
1 876
334
Cash and cash equivalents
8 994
11 112
Other current assets
2 668
2 680
Total current assets without disposal group
28 973
28 663
Assets of disposal group held for sale
3
841
Total current assets
28 973
29 504
Total assets
129 678
118 370
Equity and liabilities
Equity
Share capital
913
936
Treasury shares
-44
-80
Reserves
53 615
54 618
Issued share capital and reserves attributable to Novartis AG shareholders
54 484
55 474
Non-controlling interests
70
77
Total equity
54 554
55 551
Liabilities
Non-current liabilities
Financial debts
26 497
20 353
Lease liabilities
1 684
1 703
Deferred tax liabilities
7 427
5 867
Provisions and other non-current liabilities
7 678
6 632
Total non-current liabilities
43 286
34 555
Current liabilities
Trade payables
4 705
5 424
Financial debts and derivative financial instruments
9 727
7 031
Lease liabilities
267
246
Current income tax liabilities
2 714
2 194
Provisions and other current liabilities
14 425
13 338
Total current liabilities without disposal group
31 838
28 233
Liabilities of disposal group held for sale
3
31
Total current liabilities
31 838
28 264
Total liabilities
75 124
62 819
Total equity and liabilities
129 678
118 370
27

Consolidated statements of changes in equity
Third quarter (unaudited)

(USD millions)





Note




Share
capital




Treasury
shares




Retained
earnings




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



Non-
controlling
interests




Total
equity
Total equity at July 1, 2020
913
-37
57 495
-4 559
53 812
73
53 885
Net income
1 935
1 935
-3
1 932
Other comprehensive income
-44
772
728
0
728
Total comprehensive income
1 891
772
2 663
-3
2 660
Purchase of treasury shares
-8
-1 302
-1 310
-1 310
Exercise of options and employee transactions
-17
-17
-17
Equity-based compensation
1
187
188
188
Taxes on treasury share transactions
1
1
1
Increase of treasury share repurchase
obligation under a share buyback trading plan

4.1



-857


-857


-857
Fair value adjustments on financial assets sold
1
-1
Other movements
4.2
4
4
4
Total of other equity movements
-7
-1 983
-1
-1 991
-1 991
Total equity at September 30, 2020
913
-44
57 403
-3 788
54 484
70
54 554

(USD millions)





Note




Share
capital




Treasury
shares




Retained
earnings




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



Non-
controlling
interests




Total
equity
Total equity at July 1, 2019
936
-67
55 645
-5 088
51 426
78
51 504
Net income
2 042
2 042
-1
2 041
Other comprehensive income
-40
-1 134
-1 174
-2
-1 176
Total comprehensive income
2 002
-1 134
868
-3
865
Purchase of treasury shares
-14
-2 521
-2 535
-2 535
Equity-based compensation
1
193
194
194
Taxes on treasury share transactions
-4
-4
-4
Decrease of treasury share repurchase obligation
under a share buyback trading plan

4.1



2 573


2 573


2 573
Changes in non-controlling interests
-1
-1
Fair value adjustments on financial assets sold
38
-38
Other movements
4.2
2
2
2
Total of other equity movements
-13
281
-38
230
-1
229
Total equity at September 30, 2019
936
-80
57 928
-6 260
52 524
74
52 598
28

Consolidated statements of changes in equity
Nine months to September 30, 2020 (unaudited)

(USD millions)





Note




Share
capital




Treasury
shares




Retained
earnings




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



Non-
controlling
interests




Total
equity
Total equity at January 1, 2020
936
-80
59 275
-4 657
55 474
77
55 551
Net income
5 978
5 978
-6
5 972
Other comprehensive income
-56
960
904
-1
903
Total comprehensive income
5 922
960
6 882
-7
6 875
Dividends
-6 987
-6 987
-6 987
Purchase of treasury shares
-9
-1 451
-1 460
-1 460
Reduction of share capital
-23
31
-8
Exercise of options and employee transactions
8
798
806
806
Equity-based compensation
6
547
553
553
Shares delivered to Alcon employees
as a result of the Alcon spin-off



0

29


29


29
Taxes on treasury share transactions
31
31
31
Increase of treasury share repurchase obligation
under a share buyback trading plan

4.1



-857


-857


-857
Fair value adjustments on financial assets sold
91
-91
Other movements
4.2
13
13
13
Total of other equity movements
-23
36
-7 794
-91
-7 872
-7 872
Total equity at September 30, 2020
913
-44
57 403
-3 788
54 484
70
54 554
 
29

Consolidated statements of changes in equity
Nine months to September 30, 2019 (unaudited)

(USD millions)





Note




Share
capital




Treasury
shares




Retained
earnings




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



Non-
controlling
interests




Total
equity
Total equity at January 1, 2019, as previously reported
944
-69
82 191
-4 452
78 614
78
78 692
Impact of change in accounting policies
4.3
3
3
3
Restated equity at January 1, 2019
944
-69
82 194
-4 452
78 617
78
78 695
Net income
10 607
10 607
1
10 608
Other comprehensive income
-94
-1 747
-1 841
-2
-1 843
Total comprehensive income
10 513
-1 747
8 766
-1
8 765
Dividends
-6 645
-6 645
-6 645
Dividend in kind
2, 3
-23 434
-23 434
-23 434
Purchase of treasury shares
-31
-5 476
-5 507
-5 507
Reduction of share capital
-8
12
-4
Exercise of options and employee transactions
3
197
200
200
Equity-based compensation
5
636
641
641
Shares delivered to Alcon employees
as a result of the Alcon spin-off




32


32


32
Taxes on treasury share transactions
4.4
-189
-189
-189
Decrease of treasury share repurchase obligation
under a share buyback trading plan

4.1



284


284


284
Transaction costs, net of taxes
4.5
-253
-253
-253
Changes in non-controlling interests
-1
-1
Fair value adjustments on financial assets sold
57
-57
Fair value adjustments related to divestments
4
-4
Impact of change in ownership of
consolidated entities




-3


-3

-2

-5
Other movements
4.2
15
15
15
Total of other equity movements
-8
-11
-34 779
-61
-34 859
-3
-34 862
Total equity at September 30, 2019
936
-80
57 928
-6 260
52 524
74
52 598
30

Consolidated statements of cash flows
Third quarter (unaudited)
(USD millions)
Note
Q3 2020
Q3 2019
Net income from continuing operations
1 932
2 041
Adjustments to reconcile net income from continuing operations to net cash flows from operating activities from continuing operations
Reversal of non-cash items and other adjustments
6.1
2 682
2 271
Interest received
5
32
Interest paid
-161
-134
Other financial receipts
27
51
Other financial payments
-9
-9
Taxes paid
6.2
-316
-235
Net cash flows from operating activities from continuing operations before working capital
and provision changes


4 160

4 017
Payments out of provisions and other net cash movements in non-current liabilities
-968
-146
Change in net current assets and other operating cash flow items
-36
691
Net cash flows from operating activities from continuing operations
3 156
4 562
Total net cash flows from operating activities
3 156
4 562
Purchases of property, plant and equipment
-279
-357
Proceeds from sale of property, plant and equipment
2
-3
Purchases of intangible assets
-348
-205
Proceeds from sale of intangible assets
99
140
Purchases of financial assets
-35
-69
Proceeds from sale of financial assets
108
565
Purchases of other non-current assets
-6
-10
Proceeds from sale of other non-current assets
0
1
Acquisitions and divestments of interests in associated companies, net
-2
-1
Acquisitions and divestments of businesses, net
6.3
-110
-3 460
Purchases of marketable securities and commodities
-1 500
-69
Proceeds from sale of marketable securities and commodities
46
67
Net cash flows used in investing activities from continuing operations
-2 025
-3 401
Net cash flows used in/from investing activities from discontinued operations
10
-20
3
Total net cash flows used in investing activities
-2 045
-3 398
Acquisitions of treasury shares
-924
-2 940
Proceeds from exercised options and other treasury share transactions
5
Increase in non-current financial debts
2 181
93
Repayments of non-current financial debts
0
-186
Change in current financial debts
710
423
Payment of lease liabilities, net
-75
-92
Impact of change in ownership of consolidated entities
-1
Other financing cash flows, net
19
5
Net cash flows from/used in financing activities from continuing operations
1 911
-2 693
Net cash flows used in financing activities from discontinued operations
10
-11
-20
Total net cash flows from/used in financing activities
1 900
-2 713
Net change in cash and cash equivalents before effect of exchange rate changes
3 011
-1 549
Effect of exchange rate changes on cash and cash equivalents
66
-64
Total net change in cash and cash equivalents
3 077
-1 613
Cash and cash equivalents at July 1
5 917
9 991
Cash and cash equivalents at September 30
8 994
8 378
31

Consolidated statements of cash flows
Nine months to September 30 (unaudited)
(USD millions)
Note
9M 2020
9M 2019
Net income from continuing operations
5 972
6 018
Adjustments to reconcile net income from continuing operations to net cash flows from operating activities from continuing operations
Reversal of non-cash items and other adjustments
6.1
7 884
6 372
Dividends received from associated companies and others
489
463
Interest received
42
172
Interest paid
-482
-540
Other financial receipts
288
61
Other financial payments
-28
-25
Taxes paid
6.2
-1 215
-1 195
Net cash flows from operating activities from continuing operations before working capital
and provision changes


12 950

11 326
Payments out of provisions and other net cash movements in non-current liabilities
-1 792
-662
Change in net current assets and other operating cash flow items
-1 513
-657
Net cash flows from operating activities from continuing operations
9 645
10 007
Net cash flows from operating activities from discontinued operations
78
Total net cash flows from operating activities
9 645
10 085
Purchases of property, plant and equipment
-754
-918
Proceeds from sale of property, plant and equipment
6
809
Purchases of intangible assets
-808
-703
Proceeds from sale of intangible assets
204
421
Purchases of financial assets
-125
-223
Proceeds from sale of financial assets
467
742
Purchases of other non-current assets
-54
-34
Proceeds from sale of other non-current assets
0
4
Acquisitions and divestments of interests in associated companies, net
-6
-4
Acquisitions and divestments of businesses, net
6.3
-10 011
-3 842
Purchases of marketable securities and commodities
-1 845
-189
Proceeds from sale of marketable securities and commodities
440
2 495
Net cash flows used in investing activities from continuing operations
-12 486
-1 442
Net cash flows used in investing activities from discontinued operations
10
-125
-1 102
Total net cash flows used in investing activities
-12 611
-2 544
Dividends paid to shareholders of Novartis AG
-6 987
-6 645
Acquisitions of treasury shares
-1 074
-5 530
Proceeds from exercised options and other treasury share transactions
846
205
Increase in non-current financial debts
7 126
93
Repayments of non-current financial debts
-2 002
-3 194
Change in current financial debts
3 196
-519
Payment of lease liabilities, net
-217
-183
Impact of change in ownership of consolidated entities
-6
Other financing cash flows, net
-123
76
Net cash flows from/used in financing activities from continuing operations
765
-15 703
Net cash flows used in/from financing activities from discontinued operations
10
-37
3 279
Total net cash flows from/used in financing activities
728
-12 424
Net change in cash and cash equivalents before effect of exchange rate changes
-2 238
-4 883
Effect of exchange rate changes on cash and cash equivalents
120
-10
Total net change in cash and cash equivalents
-2 118
-4 893
Cash and cash equivalents at January 1
11 112
13 271
Cash and cash equivalents at September 30
8 994
8 378
32

Notes to the Condensed Interim Consolidated Financial Statements for the three-month and nine-month period ended September 30, 2020 (unaudited)  

1. Basis of preparation
These Condensed Interim Consolidated Financial Statements for the three-month and nine-month period ended September 30, 2020, were prepared in accordance with International Accounting Standard 34 Interim Financial Reporting and accounting policies set out in the 2019 Annual Report published on January 29, 2020.
2. Selected critical accounting policies
The Group’s principal accounting policies are set out in Note 1 to the Consolidated Financial Statements in the 2019 Annual Report and conform with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
The preparation of financial statements requires management to make certain estimates and assumptions, either at the balance sheet date or during the year, which affect the reported amounts of assets and liabilities, including any contingent amounts, the distribution liability recognized in connection with the distribution of Alcon Inc. to Novartis AG shareholders, as well as of revenues and expenses. Actual outcomes and results could differ from those estimates and assumptions.
As disclosed in the 2019 Annual Report, goodwill, and acquired In-Process Research & Development projects are reviewed for impairment at least annually and these, as well as all other investments in intangible assets, are reviewed for impairment whenever an event or decision occurs that raises concern about their balance sheet carrying value. The amount of goodwill and other intangible assets on the Group’s consolidated balance sheet has risen significantly in recent years, primarily from acquisitions. Impairment testing may lead to potentially significant impairment charges in the future that could have a materially adverse impact on the Group’s results of operations and financial condition.
Non-current assets held for sale or held for distribution to owners
Non-current assets are classified as assets held for sale or related to discontinued operations when their carrying amount is to be recovered principally through a sale transaction or distribution to owners and a sale or distribution to owners is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell with any resulting impairment recognized. Assets related to discontinued operations and assets of disposal group held for sale are not depreciated or amortized. The prior year consolidated balance sheet is not restated.
If in a subsequent period, the criteria for classification as held for sale are no longer met, the recoverable amount of assets and liabilities are reclassified out of assets held for sale into the respective balance sheet lines, prior year consolidated balance sheet is not restated. The cumulative amount of depreciation and amortization not recorded since the date of their classification to assets held for sale, and any required adjustments to the recoverable amounts of assets are recognized in the consolidated income statement.
Distribution of Alcon Inc. to Novartis AG shareholders
During the first quarter of 2019, at the Annual General Meeting (AGM) of Novartis AG shareholders, held on February 28, 2019, the Novartis AG shareholders approved a special distribution by way of a dividend in kind to effect the spin-off of Alcon Inc.
The February 28, 2019, shareholder approval for the spin-off required the Alcon Division and selected portions of corporate activities attributable to Alcon’s business (the “Alcon business”) to be reported as discontinued operations.
The shareholder approval to spin off the Alcon business also required the recognition of a distribution liability at the fair value of the Alcon business. The Group elected to measure the distribution liability at the fair value of the Alcon business net assets taken as a whole. The distribution liability was recognized through a reduction in retained earnings. It was required to be adjusted at each balance sheet date for changes in its estimated
33

fair value, up to the date of the distribution to shareholders through retained earnings. Any resulting impairment of the business assets to be distributed would have been recognized in the consolidated income statements in “Other expense” of discontinued operations, at the date of initial recognition of the distribution liability or at subsequent dates resulting from changes of the distribution liability valuation. At the April 8, 2019 distribution settlement date, the resulting gain, which was measured as the excess amount of the distribution liability over the then-carrying value of the net assets of the business distributed, was recognized on the line “Gain on distribution of Alcon Inc. to Novartis AG shareholders” in the income statement of discontinued operations.
The recognition of the distribution liability required the use of valuation techniques for purposes of impairment testing of the Alcon business’ assets to be distributed and for the measurement of the fair value of the distribution liability. These valuations required the use of management assumptions and estimates related to the Alcon business’ future cash flows, market multiples to estimate day one market value, and control premiums to apply in estimating the Alcon business fair value. These fair value measurements were classified as “Level 3” in the fair value hierarchy. The section “—Impairment of goodwill and intangible assets” in Note 1 to the Consolidated Financial Statements of the 2019 Annual Report provides additional information on key assumptions that are highly sensitive in the estimation of fair values using valuation techniques.
Transaction costs that were directly attributable to the distribution (spin-off) of Alcon to the Novartis shareholders, and that would otherwise have been avoided, were recorded as a deduction from equity.
For additional disclosures, refer to Notes 3 and 10.
New IFRS standard effective as of January 1, 2020
IFRS 3 Business Combination amendments
The IASB issued amendments to IFRS 3 Business Combinations that revised the definition of a business, which assist entities with the evaluation of when an asset or group of assets acquired or disposed of should be considered a business. This amended standard has been applied to transactions entered into on or after January 1, 2020. The amended standard allows an entity to apply an optional concentration test, on a transaction-by-transaction basis, to evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If this optional concentration test is met, the entity may choose to consider the transaction an acquisition of an asset or set of assets. The adoption of this amended standard on January 1, 2020 did not have a significant impact on our consolidated financial statements and is not expected to have a significant impact in future periods. However, this will depend on the facts and circumstances of future transactions and if the Group decides to apply the optional concentration test in the assessment of whether an acquired set of activities and assets is or is not a business.
There are no other IFRS standards or interpretations not yet effective that would be expected to have a material impact on the Group.
3. Significant transactions
Significant transactions in 2020
Innovative Medicines – acquisition of The Medicines Company
On November 23, 2019, Novartis entered into an agreement and plan of merger (the Merger Agreement) with The Medicines Company, a US-based pharmaceutical company headquartered in Parsippany, New Jersey USA. Pursuant to the Merger Agreement, on December 5, 2019, Novartis, through a subsidiary, commenced a tender offer to acquire all outstanding shares of The Medicines Company for USD 85 per share, or a total consideration of approximately USD 9.6 billion in cash on a fully diluted basis, including the equivalent share value related to The Medicines Company’s convertible notes, in accordance with their terms. The tender offer expired on January 3, 2020, and on January 6, 2020, the acquiring subsidiary merged with and into The Medicines Company, resulting in The Medicines Company becoming an indirect wholly owned subsidiary of Novartis. Novartis financed the transaction through available cash, and short- and long-term borrowings.
The Medicines Company is focused on the development of inclisiran, a potentially first-in-class, twice yearly therapy that allows administration during patients’ routine visits to their healthcare professionals and will potentially contribute to improved patient adherence and sustained lower LDL-C levels.
The fair value of the total purchase consideration was USD 9.6 billion. The preliminary purchase price allocation resulted in net identifiable assets of approximately USD 7.1 billion, consisting of USD 8.5 billion intangible assets, USD 1.4 billion net deferred tax liabilities and goodwill of approximately USD 2.5 billion.
Results of operations since the date of acquisition were not material.
Sandoz – acquisition of the Japanese business of Aspen Global Incorporated
On November 11, 2019, Sandoz entered into an agreement for the acquisition of the Japanese business of
34

Aspen Global Incorporated (AGI), a wholly owned subsidiary of Aspen Pharmacare Holdings Limited. Under the agreement, Sandoz acquired the shares in Aspen Japan K.K. and associated assets held by AGI. The transaction closed on January 31, 2020.
Aspen’s portfolio in Japan consists of off-patent medicines with a focus on anesthetics and specialty brands. The acquisition will enable Sandoz to expand its presence in the third-largest worldwide generics marketplace.
The purchase price consist of EUR 274 million (USD 303 million) upfront payment, less customary purchase price adjustment of EUR 27 million (USD 30 million), plus potential milestone payments of up to EUR 70 million (USD 77 million), which AGI is eligible to receive upon the achievement of specified milestones.
The fair value of the total purchase consideration was EUR 294 million (USD 324 million). The amount consisted of a cash payment of EUR 247 million (USD 273 million) and the fair value of contingent consideration of EUR 47 million (USD 51 million), which AGI is eligible to receive upon the achievement of specified milestones. The preliminary purchase price allocation resulted in net identifiable assets of USD 238 million, consisting of USD 196 million intangible assets, USD 26 million other net assets, USD 16 million net deferred tax assets. Goodwill amounted to USD 86 million. Results of operations since the date of acquisition were not material.
Sandoz – retention of US dermatology business and generic US oral solids portfolio, previously planned to be divested
On September 6, 2018, Novartis announced that it entered into a stock and asset purchase agreement (SAPA) with Aurobindo Pharma USA Inc. (Aurobindo) for the sale of selected portions of its Sandoz US portfolio, specifically the Sandoz US dermatology business and generic US oral solids portfolio, for USD 0.8 billion in cash and potential earnouts. The closing was conditional on obtaining regulatory approval.
In March 2020, Novartis took the decision to retain the Sandoz US generic oral solids and dermatology businesses and entered into a mutual agreement with Aurobindo to terminate the transaction. The decision was taken as regulatory approval from the US Federal Trade Commission was not obtained within the SAPA agreed timelines.
The cumulative amount of the depreciation on property, plant and equipment and amortization on intangible assets, not recorded in the consolidated income statement since the date of classification as held for sale, amounting to USD 38 million and USD 102 million, respectively, was recognized in the consolidated income statement in the first quarter of 2020. In addition, an impairment of currently marketed products of USD 42 million was recognized in the first quarter of 2020 consolidated income statement.
As at March 31, 2020, the assets and liabilities of the Sandoz US generic oral solids and dermatology businesses were reclassified out of assets and liabilities of disposal group held for sale. The prior year balance sheet is not required to be restated.
In the Group’s consolidated balance sheet at December 31, 2019, the assets and liabilities classified as disposal group assets and liabilities held for sale consisted of the following:

(USD millions)

Dec 31,
2019
Assets of disposal group classified as held for sale
Property, plant and equipment
169
Intangible assets other than goodwill
475
Deferred tax assets
11
Other non-current assets
2
Inventories
181
Other current assets
3
Total
841
Liabilities of disposal group classified as held for sale
Deferred tax liabilities
2
Provisions and other non-current liabilities
4
Provisions and other current liabilities
25
Total
31
There are no cumulative income or expenses included in other comprehensive income relating to the disposal group.
Significant transactions in 2019
Completion of the spin-off of the Alcon business through a dividend in kind distribution to Novartis AG shareholders
On June 29, 2018, Novartis announced its intention to seek shareholder approval for the spin-off of the Alcon business into a separately traded standalone company, following the complete structural separation of the Alcon business into a standalone company (the Alcon business or Alcon Inc.).
The Novartis AG shareholders approved the spin-off of the Alcon business at the 2019 Annual General Meeting held on February 28, 2019, subject to completion of certain conditions precedent to the distribution. Upon shareholder approval, the Alcon business was reported as discontinued operations, and the fair value of the Alcon business exceeded the carrying value of its net assets.
The conditions precedent to the spin-off were met and on April 8, 2019 the spin-off of the Alcon business was effected by way of a distribution of a dividend in kind of Alcon Inc. shares to Novartis AG shareholders and ADR (American Depositary Receipt) holders (the Distribution), which amounted to USD 23.4 billion and is recognized as a reduction to retained earnings. Through the Distribution, each Novartis AG shareholder received one Alcon Inc. share for every five Novartis AG shares/ADRs they held on April 8, 2019, close of business. As of April 9, 2019, the shares of Alcon Inc. are listed on the SIX Swiss Exchange (SIX) and on the New York Stock Exchange (NYSE) under the symbol “ALC.”
The dividend in kind distribution liability to effect the spin-off of the Alcon business (the distribution liability) amounted to USD 26.4 billion at March 31, 2019, unchanged from its initial recognition on February 28, 2019, and was in excess of the carrying value of the Alcon business net assets as of February 28, 2019, and as of
35

March 31, 2019. The net assets of the Alcon business amounted to USD 23.1 billion as at March 31, 2019.
On March 6, 2019, Alcon entered into financing arrangements with a syndicate of banks under which it borrowed on April 2, 2019, a total amount of USD 3.2 billion. These borrowings consisted of approximately USD 2.8 billion and the equivalent of USD 0.4 billion in EUR in bridge and other term loans under such Alcon facilities agreement. In addition, approximately USD 0.3 billion of borrowings under a number of local bilateral facilities in different countries, with the largest share of borrowings in Japan, were raised. This resulted in a total gross debt of USD 3.5 billion. These outstanding borrowings of the Alcon legal entities were recorded in the balance sheet and financing cash flow from discontinued operations. Prior to the spin-off, through a series of intercompany transactions, Alcon legal entities paid approximately USD 3.1 billion in cash to Novartis and its affiliates.
At the April 8, 2019 Distribution, the fair value of the distribution liability of the Alcon business amounted to USD 23.4 billion, a decrease of USD 3.0 billion from March 31, 2019. As mentioned above, prior to the spin-off, through a series of intercompany transactions, Alcon legal entities incurred additional net financial debt and paid approximately USD 3.1 billion in cash to Novartis and its affiliates. This additional net debt and transactions resulted in a decrease in Alcon’s net assets to USD 20.0 billion at the date of the Distribution of the dividend in kind to Novartis AG shareholders on April 8, 2019. The distribution liability at April 8, 2019, remained in excess of the then-carrying value of the Alcon business net assets.
Certain consolidated foundations own Novartis AG dividend-bearing shares restricting their availability for use by the Group. These Novartis AG shares are accounted for as treasury shares. Through the Distribution, these foundations received Alcon Inc. shares representing an approximate 4.7% equity interest in Alcon Inc. Upon the loss of control of Alcon Inc. through the Distribution, the financial investment in Alcon Inc. was recognized at its fair value based on the opening traded share price of Alcon Inc. on April 9, 2019 (a Level 1 hierarchy valuation). At initial recognition, its fair value of USD 1.3 billion was reported on the Group’s consolidated balance sheet as a financial asset. Management has designated this investment at fair value through other comprehensive income.
The total non-taxable, non-cash gain recognized at the distribution date of the spin-off of the Alcon business amounted to USD 4.7 billion consisting of:

(USD millions)
April 8,
2019
Net assets derecognized
-20 025
Derecognition of distribution liability
23 434
Difference between net assets and distribution liability
3 409
Recognition of Alcon Inc. shares obtained
through consolidated foundations

1 273
Currency translation gains recycled into the
consolidated income statement

123
Transaction costs recognized in the consolidated income statement
-114
Gain on distribution of Alcon Inc. to Novartis AG shareholders
4 691
For additional disclosure on discontinued operations, refer to Note 10.
Innovative Medicines – acquisition of IFM Tre, Inc.
On May 7, 2019, Novartis acquired IFM Tre, Inc., a privately held, US-based biopharmaceutical company focused on developing anti-inflammatory medicines targeting the NLRP3 inflammasome. The acquisition gives Novartis full rights to IFM Tre, Inc.’s portfolio of NLRP3 antagonists. The NLRP3 antagonists portfolio consists of one clinical program and two preclinical programs: IFM-2427, a first-in-class, clinical-stage systemic antagonist for an array of chronic inflammatory disorders, including atherosclerosis and nonalcoholic steatohepatitis (NASH); a preclinical-stage gutdirected molecule for the treatment of inflammatory bowel disease; and a preclinical-stage central nervous system (CNS)-penetrant molecule.
The previously held interest of 9% was adjusted to its fair value of USD 33 million through the consolidated income statement at acquisition date. This remeasurement resulted in a gain of USD 14 million. The fair value of the total purchase consideration for acquiring the 91% stake Novartis did not already own amounted to USD 361 million. The amount consisted of an initial cash payment of USD 285 million, and the fair value of the contingent consideration of USD 76 million due to the IFM Tre, Inc. shareholders, which they are eligible to receive upon the achievement of specified development and commercialization milestones. The purchase price allocation resulted in net identifiable assets of USD 355 million, mainly intangibles, and goodwill of USD 39 million. The 2019 results of operations since the date of acquisition were not material.
Innovative Medicines – acquisition of Xiidra
On May 8, 2019, Novartis entered into an agreement with Takeda Pharmaceutical Company Limited (Takeda) to acquire the assets associated with Xiidra (lifitegrast ophthalmic solution) 5% worldwide. Xiidra is the first and only prescription treatment approved to treat both signs and symptoms of dry eye by inhibiting inflammation caused by the disease. The transaction bolsters the Novartis front-of-the-eye portfolio and ophthalmic leadership. The transaction closed on July 1, 2019. The purchase price consists of a USD 3.4 billion upfront payment, customary purchase price adjustments of USD 0.1 billion, and the potential milestone payments of up to USD 1.9 billion, which Takeda is eligible to receive upon the achievement of specified commercialization milestones.
The fair value of the total purchase consideration was USD 3.7 billion. The amount consists of an initial cash payment of USD 3.5 billion, and the fair value of the contingent consideration of USD 0.2 billion, which Takeda is eligible to receive upon the achievement of specified commercialization milestones.
The purchase price allocation resulted in net identifiable assets of approximately USD 3.6 billion, consisting mainly of intangible assets of USD 3.6 billion, and goodwill amounted to approximately USD 0.1 billion. In 2019, from the date of acquisition, the business generated net sales of USD 0.2 billion. Management estimated that net sales for the entire year of 2019 would have amounted to USD 0.3 billion, had the business been acquired at the beginning of the 2019 reporting period.
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The 2019 results of operations since the date of acquisition were not material.
4. Summary of equity attributable to Novartis AG shareholders
Number of outstanding shares (in millions)
Issued share capital and reserves attributable to Novartis AG shareholders (in USD millions)
Note
2020
2019
9M 2020
9M 2019
Balance at beginning of year
2 265.0
2 311.2
55 474
78 614
Impact of change in accounting policy
4.3
3
Restated equity at January 1
55 474
78 617
Shares acquired to be cancelled
-14.7
-60.3
-1 305
-5 351
Other share purchases
-1.6
-1.7
-155
-156
Exercise of options and employee transactions
14.7
5.5
806
200
Equity-based compensation
10.8
9.9
553
641
Shares delivered to Alcon employees as a result of the Alcon spin-off
0.3
29
32
Taxes on treasury share transactions
4.4
31
-189
(Increase)/Decrease of treasury share repurchase obligation
under a share buyback trading plan

4.1



-857

284
Dividends to shareholders of Novartis AG
-6 987
-6 645
Dividend in kind to effect the spin-off of Alcon Inc.
-23 434
Net income of the period attributable to shareholders of Novartis AG
5 978
10 607
Other comprehensive income attributable to shareholders of Novartis AG
904
-1 841
Transaction costs, net of taxes
4.5
-253
Impact of change in ownership of consolidated entities
-3
Other movements
4.2
13
15
Balance at September 30
2 274.5
2 264.6
54 484
52 524
  
4.1. In 2020, Novartis entered into an irrevocable, non-discretionary arrangement with a bank to repurchase Novartis shares to mitigate dilution related to participation plans of associates. Novartis is able to cancel this arrangement at any time but could be subject to a 90-day waiting period. The commitment under this arrangement therefore reflects the obligated purchases by the bank under such trading plan over a rolling 90-day period, or if shorter, until the maturity date of such trading plan. The commitment under this arrangement amounted to USD 857 million as of September 30, 2020.
In 2019, Novartis entered into a similar irrevocable, non-discretionary arrangement with a bank to repurchase Novartis shares. The commitment under this arrangement reflected the expected purchases by the bank under such trading plans over a rolling 90-day period. As of September 30, 2019, this trading plan commitment was fully executed and expired, and as a consequence, there is no contingent liability related to this plan recognized.
4.2. Other movements includes, for subsidiaries in hyperinflationary economies, the impact of the restatement of the non-monetary assets and liabilities with the general price index at the beginning of the period as well as the restatement of the equity balances of the current year.
4.3. In 2019, the impact of change in accounting policy includes USD 3 million related to the implementation of IFRS 16 Leases.
4.4. Included in 2019 is a USD 69 million impact related to the revaluation of deferred tax liability on treasury shares that are recognized through retained earnings. This revaluation resulted from the Swiss Federal tax reform enacted in May 2019, effective January 1, 2020.
4.5. In 2019, transaction costs that were directly attributable to the distribution (spin-off) of Alcon Inc. to Novartis shareholders and that would otherwise have been avoided, were recorded as a deduction from equity.
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5. Financial instruments
Fair value by hierarchy
The following table illustrates the three hierarchical levels for valuing financial instruments at fair value as of September 30, 2020 and December 31, 2019. For additi