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`6-K 1 a110419-6k.htm 6-K
`SECURITIES AND EXCHANGE COMMISSION
`Washington, D.C. 20549
`FORM 6-K
`REPORT OF FOREIGN PRIVATE ISSUER
`PURSUANT TO RULE 13a-16 or 15d-16 OF
`THE SECURITIES EXCHANGE ACT OF 1934
`
`Report on Form 6-K dated April 19, 2011
`(Commission File No. 1-15024)
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`Novartis AG
`(Name of Registrant)
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`Lichtstrasse 35
`4056 Basel
`Switzerland
`(Address of Principal Executive Offices)
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`Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
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`Form 20-F:
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` Form 40-F: o
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`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):
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`Yes: o
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` No:
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`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):
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`Yes: o
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` No:
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`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.
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`Yes: o
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` No:
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`Novartis International AG
`Novartis Global Communications
`CH-4002 Basel
`Switzerland
`http://www.novartis.com
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`Novartis makes strong start for the year
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`FINANCIAL REPORT • RAPPORT FINANCIER • FINANZBERICHT
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`Novartis generates strong sales growth of 14% in constant currencies in first quarter, operating income impacted by 2010
`sales from A(H1N1) pandemic flu vaccines
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`o Net sales up 16% (+14% in constant currencies, or cc) to USD 14.0 billion
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`o Core operating income up 4% (+6% cc) to USD 4.0 billion despite impact of A(H1N1) in year-ago base; core EPS
`decreased by 3% (0% cc) to USD 1.41
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`o Free cash flow of USD 1.6 billion
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`Excluding A(H1N1) pandemic flu vaccine sales and Alcon, net sales up 10% (+8% cc), core operating income up 13%
`(+16% cc) and core margin improves 2.0 percentage points (cc)
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`· Novartis strengthens its healthcare portfolio
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`o Alcon merger completed on April 8, 2011 to provide new, world-class growth platform addressing unmet needs in the
`rapidly growing eye care sector; new divisional structure to be implemented from second quarter 2011
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`o Dilution from Alcon-related share issue to be mitigated further by share repurchases; USD 2.4 billion of Alcon shares and
`USD 0.6 billion of Novartis shares repurchased in first quarter of 2011
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`· Novartis maintains its industry-leading position in innovation with new approvals and recommendations, expanding
`potential for sustained growth
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`o The breakthrough multiple sclerosis treatment Gilenya gains approval in the EU, as does Lucentis for the treatment of
`vision loss related to diabetic macular edema, a leading cause of blindness
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`o Novartis pipeline highlights include a Phase III study of JAK inhibitor INC424 that shows promise for patients with
`myelofibrosis and CHMP’s recommendation for Lucentis in the treatment of retinal vein occlusion
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`Key figures
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`Net sales
`Operating income
`Net income
`EPS (USD)
`Free cash flow
`(before dividends)
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`Core1
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`Q1 2011
`USD m
`14 027
`3 408
`2 821
`1.21
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`1 622
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`Q1 2010
`USD m
`12 131
`3 511
`2 948
`1.29
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`2 903
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`4 012
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`% change
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`3 376
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`1.41
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`3 309
`1.45
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`2
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`4
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`Net income
`EPS (USD)
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` See page 38 for further information and definition of core results
`All product names appearing in italics are trademarks owned by or licensed to Novartis Group Companies.
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`Basel, April 19, 2011 — Commenting on the results, Joseph Jimenez, CEO of Novartis, said:
`“Contributions from all businesses led to a good start in 2011, as we achieved 14% growth in the first quarter. We maintained our
`innovation momentum with new approvals for our multiple sclerosis treatment Gilenya and our eye care treatment Lucentis in the EU.
`Additionally, promising results of numerous clinical trials, including a Phase III study involving JAK inhibitor INC424, again showed
`the success of our novel approach to R&D. In April, we completed our merger with Alcon, the leading eye care business in the world,
`creating the second-largest business in the Novartis portfolio.”
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`
`GROUP REVIEW
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`First quarter
`Net sales rose 16% (+14% cc) to USD 14.0 billion. Currency benefited sales by 2% as the dollar weakened against most currencies.
`Excluding A(H1N1) pandemic flu vaccine sales and Alcon, net sales grew 10% (+8% cc). Recently launched products provided USD
`3.1 billion of net sales in the first quarter, representing 26% of total net sales (excluding Alcon).
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`Pharmaceuticals net sales grew 7% (+5% cc) to USD 7.8 billion, driven by 9 percentage points of volume growth, partly offset by a
`negative pricing impact of 2 percentage points and the negative impact of generics entries and product divestments of 2 percentage
`points. Recently launched products contributed 25% of Pharmaceuticals sales, an increase of 33% cc over the first quarter of 2010.
`Sandoz showed strong growth (+15% cc) in the US, Canada, Western Europe, and Central and Eastern Europe, which more than offset
`the shortfall in Germany due to rapid tender implementation and increased government-mandated rebates. Vaccines & Diagnostics was
`down by 73% in constant currencies due to 2010 A(H1N1) pandemic flu vaccine sales (USD 1.1 billion); excluding this, sales grew
`43% in constant currencies. Consumer Health grew 9% in constant currencies led by OTC with Prevacid24HR and the cough and cold
`and respiratory portfolio. Alcon contributed USD 1.9 billion of net sales in the first quarter with a strong performance from
`pharmaceuticals.
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`Operating income was down by 3% (0% cc). Currency had a negative impact of 3%, as the dollar weakened against the Swiss franc
`(-12%) and increased slightly against the euro (+1%). Excluding A(H1N1) pandemic flu vaccine and Alcon, underlying operating
`income was up 25% (+30% cc). Exceptional items in operating income in the first quarter of 2011 include: divestment gains of USD
`102 million on the sale of ophthalmic pharmaceuticals and lens care products required for the approval of the Alcon merger and an
`exceptional CIBA Vision gain of USD 183 million from a legal settlement, offset by exceptional charges relating to legal settlements
`(Sandoz USD 28 million) and restructuring charges relating to the streamlining of our manufacturing network (USD 55 million). Alcon
`contributed USD 207 million to operating income in the first quarter.
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`Core operating income, which excludes exceptional items and amortization of intangible assets, increased 4% (+6% cc). Core
`operating income excluding A(H1N1) pandemic flu vaccine and Alcon was up 16% cc versus previous year. Pharmaceuticals grew
`core operating income by 11% cc on good cost management. Sandoz was up by 11% cc, and Consumer Health was up by 30% cc.
`Vaccines & Diagnostics turned in a small loss following a substantial 2010 income from A(H1N1) pandemic flu vaccine. Alcon
`contributed USD 722 million to core operating income.
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`Core operating income margin declined 3.3 percentage points to 28.6% of sales. Currency movements (-1.1 percentage points) and
`2010 A(H1N1) pandemic flu vaccine sales (-5.4 percentage points), partially offset by a contribution from the inclusion of Alcon (+1.2
`percentage points), obscured an improvement in the underlying core margin in constant currencies of 2.0 percentage points.
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`Net income was down 4% (-1% cc) due to additional financing costs related to Alcon, partially offset by an improved tax rate of 16.0%
`(from 16.5%). Core net income increased 2% (+4% cc). EPS was down 6% (-3% cc) more than net income and core EPS declined 3%
`(0% cc) due to the impact of the allocation of Alcon core net income to its non-controlling shareholders.
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`Free cash flow of USD 1.6 billion was 44% lower than the previous year, primarily due to cash collection for A(H1N1) pandemic flu
`vaccine in the first quarter of 2010 (USD 1.3 billion).
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`Changes to the Executive Committee of Novartis
`Effective October 1, 2011 Felix R. Ehrat will become the new General Counsel for Novartis International AG reporting directly to
`Joseph Jimenez. Mr Ehrat joins Novartis from the Swiss law firm of Baer & Karrer Ltd, where he last served as Senior Partner and
`Executive Chairman. He brings to Novartis considerable Swiss and International legal experience and will become a permanent
`attendee to the Executive Committee of Novartis. Mr Ehrat succeeds Thomas Werlen who has chosen to depart Novartis to pursue
`opportunities including entrepreneurial and commercial interests. The company thanks Mr Werlen for his dedication and contributions
`to the business over the last years.
`
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`Delivering innovation, growth and productivity
`The long-term Novartis growth strategy is based on our focused, diversified portfolio. We deliver world-class treatments to patients and
`develop innovative collaborations with customers and governments across the global marketplace. Our merger with Alcon adds the
`largest eye care business in the world to this portfolio, strengthening our position in a sector whose future growth is underpinned by the
`aging population around the world. Starting in the second quarter of 2011, the OTC and Animal Health businesses will be reported as
`Novartis Consumer Health, and CIBA Vision will be reported as a part of our new Alcon Division. Restated financials on the new
`divisional structure will be published on May 18, 2011.
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`All of the Novartis divisions share a continued commitment to three core priorities: (1) innovation leading to the creation of new
`treatments to address unmet patient need; (2) growth, expanding our reach through best-in-class launches and partnerships in new
`markets; and (3) productivity allowing us to operate efficiently and effectively, freeing up resources for future R&D and investment in
`talent. Focusing on these three priorities will help us to realize our goal of becoming the world’s most respected and trusted healthcare
`company.
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`Innovation: new treatments and expanded applications
`Novartis continues to lead the industry in our commitment to R&D. This dedication has resulted in a deep pipeline of new products that
`drive sustained growth. Further, our cutting-edge approach to R&D, based on researching the pathways of a disease, allows us to
`continually find new applications for our products, expanding their impact on patient outcomes and quality of life. In the first quarter of
`2011, we made further progress in the development of our pipeline.
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`Our breakthrough oral multiple sclerosis treatment Gilenya was approved for use in the EU, Switzerland and Australia, among other
`countries. Lucentis was approved in the EU for the treatment of diabetic macular edema, a leading cause of blindness for which there
`had previously been no approved therapies.
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`In Vaccines & Diagnostics, our meningococcal vaccine Menveo was approved for use in the US for children from 2 to 10 years of age
`in the prevention of this deadly disease. Novartis received a Refusal to File letter from the FDA for the use of Menveo in infants aged 2
`to 12 months. In April, we have submitted a new file in infants and toddlers for the age from 2 to 24 months and are awaiting
`acceptance from the FDA of our resubmitted application for the expanded use of the vaccine. Aflunov, an influenza vaccine to help
`prevent avian flu (H5N1), was approved for use in the EU.
`
`Many of our treatments also received positive recommendations from key regulators in the first quarter. The EMA's Committee for
`Medicinal Products for Human Use (CHMP) gave a positive recommendation for Lucentis in the treatment of vision loss stemming
`from retinal vein occlusion and for Rasilamlo, a single-pill therapy for the treatment of high blood pressure.
`
`The FDA’s Pulmonary-Allergy Drug Advisory Committee recommended approval for Arcapta™ Neohaler™ (QAB149, indacaterol) in
`the 75 mcg dose for treatment of chronic obstructive pulmonary disease (COPD), a progressive and life-threatening lung disease that
`affects more than 12 million Americans.
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`The FDA granted priority review for Afinitor in the treatment of patients with advanced neuroendocrine tumors (NET). Based on
`feedback from the FDA, Novartis amended its application on April 8 to only seek approval for the treatment of advanced NET of
`pancreatic origin. At a meeting on April 12, the FDA’s Oncologic Drugs Advisory Committee unanimously recommended approval of
`Afinitor for this indication. The current median survival duration for patients with advanced pancreatic NET is only 24 months, and
`Afinitor holds promise for addressing this critical area of patient need.
`The outcome of the second Phase III study of JAK inhibitor INC424 yielded data showing significant improvement in patients with
`myelofibrosis, a debilitating disease with limited available therapies. Taken together, the two Phase III studies of INC424 provide the
`basis for worldwide regulatory filings, which Novartis expects to make in the second quarter of 2011. In addition, two Phase III studies
`showed that Onbrez Breezhaler, when combined with tiotropium, was more effective than tiotropium alone in the treatment of COPD.
`
`In Phase II results, data suggested the effectiveness of DEB025 as a first-in-class therapy for hepatitis C. Hepatitis C is one of the
`world's most common liver diseases.
`
`Sandoz made progress with its biosimilar pipeline, announcing the initiation of a Phase II clinical study of rituximab
`(Rituxan®/Mabthera®). Sandoz is currently the global leader in biosimilars, with three products on the market.
`
`Growth: meeting the needs of the global marketplace
`The Novartis growth strategy is based on an expansive view of the healthcare marketplace. We are committed to meeting the needs of
`patients, partners, and customers regardless of category or geography. Novartis, with our focused, diversified portfolio and established
`R&D excellence, has a true commitment to anticipating and addressing customer and patient needs.
`
`In the first quarter, excluding A(H1N1) pandemic flu vaccine sales and Alcon, we achieved strong volume growth of 10%, with a
`negative price impact of 2%. The strong growth was fueled by our continued portfolio rejuvenation. Our recently launched products,
`excluding A(H1N1) pandemic flu vaccine and Alcon, grew 45%, and now represent 26% of total sales.
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`Novartis maintains a strong presence in key emerging markets, particularly in China, Russia, Brazil and India. In the first quarter, we
`grew 2% (-1% in cc) in our top six emerging markets – which include South Korea and Turkey in addition to the countries listed above
`– impacted by the effect of strong A(H1N1) pandemic flu vaccine sales in the prior-year period. Excluding A(H1N1) pandemic flu
`vaccine, growth in top six emerging markets was 10% in constant currencies. Our Vaccines & Diagnostics division completed the
`acquisition of a majority stake in Zhejiang Tianyuan, expanding our vaccines presence in China.
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`Pharmaceuticals achieved strong underlying volume growth of 9%. Recently launched Pharmaceuticals products continued to
`contribute significantly to overall growth in the first quarter as a result of our sustained commitment to R&D. In particular, Gilenya,
`launched in the US in October 2010, achieved strong growth, with sales of USD 59 million. In addition, Tasigna (USD 153 million,
`+100% cc) contributed to Pharmaceuticals growth, gaining additional ground in its market segment, supported by data that continue to
`demonstrate its superiority even to Glivec in treating patients with chronic myeloid leukemia.
`
`Sandoz grew strongly by 15% in constant currencies versus previous year with 25% volume expansion driven by recent launches
`including enoxaparin and gemcitabine, as well as strong performance in the US, Canada, Western Europe, Russia and Japan, and strong
`biosimilars growth.
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`Vaccines & Diagnostics showed strong growth in its underlying business, excluding the 2010 A(H1N1) pandemic flu vaccine sales.
`The meningococcal disease franchise performed well in the first quarter.
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`Consumer Health also performed well, growing 9% in constant currencies in the first quarter. All three businesses grew faster than
`their respective markets, with OTC growth driven by a strong cough and cold and flu season, and Animal Health growth benefitting
`from the performance of parasiticides and the farm animal business. CIBA Vision continued to show strong growth in key brands
`AirOptix and Dailies, though overall growth was affected by a difficult market environment in Europe.
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`Productivity: creating opportunities for reinvestment in talent and R&D
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`Novartis maintains a high commitment to efficiency in all of our operations, enabling us to continue to lead the industry in R&D
`investment and to attract and retain top talent. Productivity improvements in the quarter generated benefits equivalent to 3.9 percentage
`points of margin improvement although this benefit was partially offset by a gross margin decrease of 2.4 percentage points. Overall,
`when excluding the distorting effects of A(H1N1) pandemic vaccine and the Alcon acquisition, core margin improved by 2.0
`percentage points in constant currencies.
`
`In the first quarter, we made further progress in our efforts to optimize our manufacturing footprint. We announced the discontinuation
`of Pharmaceuticals manufacturing in Tlalpan, Mexico, and Horsham, UK, in addition to the four sites we announced in the fourth
`quarter of 2010. We have recorded charges related to exits and inventory write-offs of USD 55 million in the first quarter of 2011, and
`USD 118 million cumulatively since the program began in the fourth quarter of 2010. With these exits we are reducing excess capacity
`and enabling the shift of strategic production to technology competence centers. Further progress will be announced each quarter
`following the announcements to our associates.
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`Alcon
`On April 8, 2011 we completed the merger with Alcon, Inc. (Alcon), creating a global leader in eye care. With approximately 16% of
`total Group sales, the new Alcon Division is the company’s second largest growth platform behind Pharmaceuticals. The eye care
`sector offers attractive growth opportunities, underpinned by the increasing unmet needs of emerging markets and a global aging
`population. Together, the Alcon and Novartis eye care portfolios address a broad range of these unmet needs.
`
`Under the terms of the merger agreement, Alcon shareholders received 2.9228 Novartis shares (which includes the dividend
`adjustment) and USD 8.20 in cash for each share of Alcon, for a total consideration of USD 168 per share. Total consideration for the
`merger was USD 9.6 billion, comprising equity of USD 9.1 billion (165 million shares) and cash of USD 0.5 billion (contingent value
`amount). Total consideration was lower than anticipated in December 2010 as a result of Alcon share repurchases of USD 2.6 billion.
`
`Novartis is committed to mitigating the dilution to shareholders from the issue of Novartis shares. This has already been partially
`mitigated through completed share repurchases of USD 3.2 billion (including the purchase of 16.1 million Alcon shares and 9.7 million
`Novartis shares since the December 15, 2010 announcement). Based on the share repurchases made to date, the merger is expected to
`be approximately 4% dilutive to basic earnings per share (EPS), and approximately 1% dilutive to core EPS in 2011. If the share
`buyback were to be increased to USD 5.0 billion (which includes the USD 3.2 billion already completed), the transaction would be
`approximately 3% dilutive to basic EPS and neutral to core EPS.
`
`The new Alcon Division combines the Alcon portfolio with Novartis ophthalmic medicines (excluding Lucentis) and the CIBA Vision
`contact lens and lens care business. The division will operate with three businesses – Surgical, Pharmaceutical and Vision Care – with a
`full portfolio of products addressing eye diseases, vision conditions and common refractive errors. The Alcon generics business,
`Falcon, will be integrated into Sandoz. Annual sales of the new division will be in excess of USD 9 billion.
`
`Integration of the eye care businesses commenced immediately after merger closing and is expected to take approximately six months.
`We have already established a new operating model for the Alcon Division, announced the global leadership team and selected country
`management. Functional integration is well underway.
`
`Combining Novartis and Alcon offerings, all three businesses have leading global brands: the Surgical business is the number one in
`intraocular lenses, cataract and vitreoretinal equipment; the Pharmaceutical business is leading in allergy products, anti-infectives and
`glaucoma products; and the Vision Care business is well positioned in weekly/monthly and disposable contact lenses, as well as multi-
`purpose and peroxide solutions.
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`To maximize value creation through integration, we are following our strategic priorities of innovation, growth and productivity. We
`will leverage our expertise in R&D to expand potential targets for Alcon, and have already identified opportunities for the integrated
`development of
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`technology in the contact lens and intraocular lens segment. With our expanded portfolio, we will have more to offer eye care
`professionals, and expect to have an increased share of voice in the eye care market. Expanded market access is expected to increase
`reimbursement for value-added products outside the US and accelerate penetration in emerging markets. We plan to leverage the
`portfolio breadth, global presence and capabilities of Sandoz to deliver growth from the Alcon generics business.
`
`From a financial perspective, Novartis has four key objectives for the integration: streamlining the cost base and delivering cost
`savings; capitalizing on the growth opportunities; improving cash flow return on investment (CFROI) for the Alcon Division; and
`mitigating dilution of earnings per share (EPS) from the merger.
`
`With full ownership, annual cost synergies are expected to exceed USD 300 million. Programs have been launched to reduce the cost
`base in manufacturing and procurement, as well as back-office and commercial functions. We expect significant reduction of head
`office and General & Administration costs by up to 40%, whereas there is limited overlap in Marketing & Sales and R&D operations.
`
`Total exceptional costs associated with the merger over the next three years are estimated to amount approximately to USD 600
`million, including charges for severance, retention and relocation, and a preliminary estimate for the integration of Alcon into the
`Novartis IT platform of USD 350 million.
`
`Reflecting the value creation opportunities we identified, we expect the new Alcon Division to improve CFROI across sales growth,
`core operating margin and cash flow-to-sales ratio. In 2010, Alcon delivered high-single-digit sales growth, while CIBA Vision
`achieved sales growth in the mid-single-digits. Combining the two businesses and executing on the identified revenue synergies is
`expected to provide sales growth above market. Core operating margin of the two businesses can be improved through identified cost
`synergies. In addition, we have identified improved operating structures, which could have a beneficial impact on the Group tax charge
`of up to 0.5 percentage points. Realizing growth and cost saving opportunities, together with a reduction of invested capital, is
`expected to improve CFROI.
`
`Full pro forma comparatives of the new Alcon Division will be provided in an investor call on May 18, 2011.
`
`Cash flow
`The sustainability of our strategy lies with the generation of cash flow that provides the resources for reinvestment and creates
`shareholder return. Cash flow is driven by a continued focus on the cash conversion cycle and operational cash flow improvements.
`Free cash flow was USD 1.6 billion for the quarter, a decline of 44% over the previous year, primarily due to the cash collection for
`A(H1N1) pandemic flu vaccine in the first quarter of 2010 (USD 1.3 billion), the payment of legal and restructuring provisions made in
`2010 (USD 0.6 billion) and an increase in working capital from the low year-end level.
`
`Capitalization and net debt
`On April 8, 2011, 165 million shares were issued in connection with the merger with Alcon, composed of 108 million newly issued
`shares and 57 million treasury shares. This represents an increase in the shares outstanding of 6.8% since December 15, 2010. On
`announcement of the merger agreement, the company committed to reduce the dilution created by the share issue through reactivation
`of the share buyback program. In the period from the announcement to the date of the merger, purchases of Novartis shares (USD 0.6
`billion) and Alcon shares (USD 2.6 billion) totaled USD 3.2 billion, significantly reducing dilution. Repurchases of Novartis shares
`will continue to further reduce the impact of dilution.
`
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`As of March 31, 2011, net debt stood at USD 22.3 billion, with USD 8.7 billion outstanding on the commercial paper programs. This
`represents a net increase of USD 7.4 billion since December 31, 2010, mainly as a result of the cash used for the dividend payment
`(USD 5.4 billion), cash outflow for share repurchases (USD 2.8 billion) and acquisitions (USD 0.6 billion). The long-term credit rating
`for the company continues to be double-A (Moody’s Aa2; Standard & Poor’s AA-; Fitch AA).
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`2011 Group outlook
`(Barring unforeseen events)
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`Novartis reaffirms expectations for Group net sales to grow around the double-digit mark in 2011 and aim to improve core operating
`income margin in constant currencies while absorbing price cuts, generic competition and the loss of sales from the A(H1N1)
`pandemic flu vaccine, and while investing for the future.
`
`During the first quarter, the dollar weakened against most currencies. As a result, if March year-to-date exchange rates prevail for the
`remainder of the year, the impact would be positive (+3%) on sales and negative (-2%) on operating income for the full year.
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`
`
`
`
`
`
`
`
`
`Q1 2011
`USD m
`7 765
`2 499
`32.2
`2 580
`33.2
`
`
`
`
`
`
`
`
`
`Q1 2010
`USD m
`
`
`7 291
`
`2 280
`31.3
`2 385
`
`32.7
`
`
`HEALTHCARE BUSINESS REVIEW
`
`Pharmaceuticals
`
`
`Net sales
`Operating income
` As % of net sales
`Core operating income
` As % of net sales
`
`First quarter
`
`Net sales
`Net sales grew 7% (+5% cc) to USD 7.8 billion, driven by 9 percentage points of volume growth, partly offset by a negative pricing
`impact of 2 percentage points (mainly due to healthcare cost-containment measures), and the effect of generics launches and product
`divestments of an additional 2 percentage points. Products launched since 2007 generated USD 2 billion of net sales, growing 33% in
`constant currencies over the same period last year. These recently launched products – which include Lucentis, Exforge, Exelon Patch,
`Exjade, Reclast/Aclasta, Tekturna/Rasilez, Tasigna, Afinitor, Onbrez Breezhaler, Ilaris, Fanapt and Gilenya – now comprise 25% of
`division sales, compared to 20% in the same period last year.
`
`Europe (USD 2.8 billion, +3% cc) particularly benefited from recently launched products, which accounted for 32% of net sales in the
`region. Europe sustained strong volume growth of 9 percentage points, more than offsetting the negative pricing impact of 5 percentage
`points (mainly due to healthcare cost-containment measures) and the effect of the entry of generics of 1 percentage point. Latin
`America and Canada (USD 0.7 billion, +13% cc) maintained solid growth rates, while Japan (USD 0.9 billion, +12% cc) saw strong
`sales growth due to increased launch momentum and wholesaler safety stocking in light of recent natural disasters. The US (USD 2.4
`billion, +2% cc) contributed 31% of total sales for the division. India, China and South Korea led the six top emerging markets (USD
`0.8 billion, +6% cc) with double-digit sales growth, partly offset by the impact of cost-containment measures in Turkey.
`
`All strategic franchises contributed to the business expansion. Oncology (USD 2.6 billion, +6% cc), the largest franchise in
`Pharmaceuticals, benefitted from the sustained growth of Bcr-Abl products Glivec/Gleevec and Tasigna (USD 1.2 billion, +9% cc),
`Sandostatin (USD 337 million, +7% cc) and Femara (USD 354 million, +2% cc), with the recently launched Afinitor adding USD 90
`million (+117% cc). The Cardiovascular and Metabolism franchise (USD 1.9 billion, +5% cc) showed solid growth momentum
`supported by hypertension medicines (USD 1.8 billion, +2% cc) and continued strong uptake of Galvus (USD 132 million, +72% cc).
`Neuroscience and Ophthalmics (USD 1.0 billion, +14% cc) benefited from the continued robust growth of Lucentis (USD 444 million,
`+18% cc), Extavia (USD 34 million, +66% cc), and the recently launched Gilenya, which increased its growth momentum in the US.
`
`Operating income
`Operating income increased 10% (+13% cc) to USD 2.5 billion, stronger than core operating income due to divestment income from
`ophthalmic products related to the Alcon acquisition (USD 81 million), partly offset by restructuring-related charges.
`
`Core operating income grew 8% (+11% cc). The core operating income margin of 33.2% increased by 0.5 percentage points despite a
`negative currency impact of 1.5 percentage points. Gross margin improved slightly by 0.1 percentage points, while R&D expenses
`increased by 0.3 percentage points, mainly due to negative currency impact and phasing of clinical trial activities. Marketing & Sales
`and General & Administration expenses improved by 1.1 percentage points, benefiting from continuing productivity efforts that more
`than offset significant investments in new product launches. Other Income and Expense, net increased by 0.5 percentage points,
`primarily due to the fee associated with healthcare reform in the US.
`
`
`8
`
`https://www.sec.gov/Archives/edgar/data/1114448/000137036811000013/a110419-6k.htm
`
`10/55
`
`000010
`
`

`

`4/22/2018
`
`Novartis - SEC Report
`
`
`
`
`
`
`
`
`
`
`
`
`
`Q1 2011
`
`USD m
`
`
`1 405
`
`261
`
`131
`
`1 797
`
`132
`
`1 929
`
`262
`
`2 191
`
`
`Q1 2010
`USD m
`
`
`1 442
`
`204
`
`89
`
`1 735
`
`76
`
`1 811
`
`368
`
`2 179
`
`
`% change
`USD
`
`
`-3
`
`28
`
`47
`
`4
`
`74
`
`7
`
`-29
`
`1
`
`
`
`
`
`cc
`
`-5
`27
`46
`2
`72
`5
`-31
`-1
`
`
`Pharmaceuticals product review
`
`Cardiovascular and Metabolism
`
`
`Hypertension medicines
`Diovan
`Exforge
`Tekturna/Rasilez
`Subtotal
`Galvus
`Total strategic products
`Established medicines
`Total
`
`Our Hypertension franchise, consisting of Diovan, Exforge and Tekturna/Rasilez, continued to grow as our portfolio shifts from Diovan
`to Exforge and Tekturna/Rasilez.
`
`Diovan Group (USD 1.4 billion, -5% cc) worldwide sales started to decline mainly driven by the anticipated entry of generic valsartan
`in selected markets such as Spain, Canada and Brazil and price pressure. The Diovan Group maintains its position as the top-selling
`branded anti-hypertensive medication wor