24 October 2023 | Tuesday | Company results
commenting on the quarter, Vas Narasimhan MD, CEO of Novartis, said: “Novartis delivered a very strong quarter, with double-digit sales and core operating income growth leading to a further upgrade to 2023 guidance. We have successfully executed the spin-off of Sandoz, allowing us to fully focus on high-value innovative medicines. Our growth drivers, including Kesimpta, Entresto, Kisqali and Pluvicto, continue to perform well in the market. Our robust pipeline also continues to deliver, and we have achieved important innovation milestones for Pluvicto, iptacopan, remibrutinib and Lutathera. We are confident in our mid-term growth outlook and remain committed to creating value for our shareholders.”
Key figures1
| Continuing operations2 | |||||||||
| Q3 2023 | Q3 2022 | % change | 9M 2023 | 9M 2022 | % change | ||||
| USD m | USD m | USD | cc | USD m | USD m | USD | cc | ||
| Net sales | 11 782 | 10 492 | 12 | 12 | 34 017 | 31 630 | 8 | 10 | |
| Operating income | 1 762 | 1 826 | -4 | 13 | 7 187 | 6 191 | 16 | 31 | |
| Net income | 1 513 | 1 330 | 14 | 37 | 5 934 | 4 734 | 25 | 41 | |
| EPS (USD) | 0.73 | 0.61 | 20 | 45 | 2.84 | 2.16 | 31 | 49 | |
| Free cash flow | 5 043 | 4 054 | 24 | 11 019 | 8 661 | 27 | |||
| Core operating income | 4 405 | 3 772 | 17 | 21 | 12 551 | 11 149 | 13 | 19 | |
| Core net income | 3 585 | 3 035 | 18 | 23 | 10 320 | 8 983 | 15 | 22 | |
| Core EPS (USD) | 1.74 | 1.40 | 24 | 29 | 4.95 | 4.09 | 21 | 28 | |
1 Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 48 of the Condensed Interim Financial Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year. 2 As defined on page 37 of the Condensed Interim Financial Report, Continuing operations include the retained business activities of Novartis, comprising the Innovative Medicines Division and the continuing Corporate activities and Discontinued operations include operational results from the Sandoz business. 3 Effective January 1, 2023, Novartis revised its definition of free cash flow, to define free cash flow as net cash flows from operating activities less purchases of property, plant and equipment. To aid in comparability, the prior year free cash flow amounts have been revised to conform with the new free cash flow definition. See page 48 of the Condensed Interim Financial Report. 4 Please see detailed guidance assumptions on page 8.
Strategy update
Our focus
Novartis has completed its transformation into a “pure-play” innovative medicines business, with the successful spin-off of Sandoz. Our focus is now centered on four core therapeutic areas (cardiovascular, renal and metabolic; immunology; neuroscience, and oncology). In each of these areas, we have multiple significant in-market and pipeline assets, all of which address diseases with a high burden and have substantial growth potential. In addition to two established technology platforms (chemistry and biotherapeutics), three emerging platforms (gene & cell therapy, radioligand therapy, and xRNA) are being prioritized for continued investment into new R&D capabilities and manufacturing scale. Geographically, we are focused on growing in our priority geographies – the US, China, Germany and Japan.
Financials
Following the September 15, 2023, shareholders’ approval of the spin-off of the Sandoz business the Company reported its consolidated financial statements for the current and prior years as “continuing operations” and “discontinued operations.”
Continuing operations include the retained business activities of Novartis, comprising the Innovative Medicines Division and the continuing corporate activities. Discontinued operations include the Sandoz Division and selected portions of corporate activities attributable to Sandoz’s business, as well as certain expenses related to the spin-off.
With the spin-off of the Sandoz business, Novartis operates as a single global operating segment, being a focused innovative medicines company.
The commentary below focuses on continuing operations. We also provide information on discontinued operations, which mainly includes Sandoz and allocated corporate activities.
Continuing operations
Third quarter
Net sales were USD 11.8 billion (+12%, +12% cc) driven by volume growth of 17 percentage points. Pricing had a negative impact of 1 percentage point and generic competition had a negative impact of 4 percentage points.
Operating income was USD 1.8 billion (-4%, +13% cc), mainly driven by higher sales and lower restructuring charges, partly offset by higher impairments through discontinuation of early stage development projects.
Net income was USD 1.5 billion (+14%, +37% cc), mainly due to higher operating income and lower tax rate driven by non-recurring items. EPS was USD 0.73 (+20%, +45% cc), growing faster than net income, benefiting from lower weighted average number of shares outstanding.
Core operating income was USD 4.4 billion (+17%, +21% cc), mainly driven by higher sales. Core operating income margin was 37.4% of net sales, increasing by 1.4 percentage points (+2.7 percentage points cc).
Core net income was USD 3.6 billion (+18%, +23% cc), mainly due to higher core operating income. Core EPS was USD 1.74 (+24%, +29% cc), growing faster than core net income, benefiting from lower weighted average number of shares outstanding.
Free cash flow amounted to USD 5.0 billion (+24% USD), compared with USD 4.1 billion in the prior year quarter driven by higher net cash flows from operating activities.
Nine months
Net sales were USD 34.0 billion (+8%, +10% cc) driven by volume growth of 16 percentage points. Pricing had a negative impact of 2 percentage points and generic competition had a negative impact of 4 percentage points.
Operating income was USD 7.2 billion (+16%, +31% cc), mainly driven by higher sales, other income from legal matters, lower restructuring charges, partly offset by higher impairments through discontinuation of early stage development projects.
Net income was USD 5.9 billion (+25%, +41% cc), mainly due to higher operating income. EPS was USD 2.84 (+31%, +49% cc), growing faster than net income, benefiting from lower weighted average number of shares outstanding.
Core operating income was USD 12.6 billion (+13%, +19% cc), mainly driven by higher sales. Core operating income margin was 36.9% of net sales, increasing by 1.7 percentage points (+2.9 percentage points cc).
Core net income was USD 10.3 billion (+15%, +22% cc), mainly due to higher core operating income. Core EPS was USD 4.95 (+21%, +28% cc), growing faster than core net income, benefiting from lower weighted average number of shares outstanding.
Free cash flow amounted to USD 11.0 billion (+27% USD), compared with USD 8.7 billion in the prior year period driven by higher net cash flows from operating activities.
Discontinued operations
Results for discontinued operations in the third quarter and nine-months 2023 include the results of the Sandoz Division and selected portions of corporate activities attributable to Sandoz business, as well as certain expenses related to the spin-off.
In connection with the Sandoz spin-off on October 4, 2023, the Company will report as part of its Q4 discontinued operations results a one-time non-cash non-taxable IFRS gain of approximately USD 5.9 billion. This IFRS gain represents mainly the excess amount of the IFRS distribution liability, which is the estimated fair value of the Sandoz business distributed to Novartis AG shareholders, over the then carrying value of Sandoz business net assets.
Third quarter
Discontinued operations net sales were USD 2.5 billion (+8%, +6% cc), mainly driven by ex-US growth.
Operating loss amounted to USD 86 million, compared to an operating income of USD 342 million in the previous year. The operating loss in third quarter was driven by the discontinued corporate transaction cost related to spin-off of the Sandoz business, which were core adjustments.
Core operating income was USD 250 million (-51%, -38% cc), mainly driven by lower gross margin and higher SG&A expenses.
Net income from discontinued operations amounted to USD 250 million, compared to USD 245 million in the previous year.
Nine months
Discontinued operations net sales were USD 7.4 billion (+6%, +8% cc), mainly driven by ex-US growth.
Operating income amounted to USD 265 million, compared to USD 1.1 billion in the previous year. The current year period includes the discontinued corporate transaction cost related to spin-off of the Sandoz business, which were core adjustments.
Core operating income was USD 1.2 billion (-20%, -11% cc), mainly driven by higher SG&A expenses and R&D investments.
Net income from discontinued operations amounted to USD 440 million, compared to USD 755 million in the previous year.
Total company
Third quarter
Total company net income was USD 1.8 billion, mainly due to higher operating income and lower tax rate driven by non-recurring items compared to USD 1.6 billion in the prior year. EPS increased to USD 0.85 from USD 0.73 in prior year.
Cash flows from operating activities amounted to USD 5.4 billion compared to USD 4.7 billion in the prior year. Free cash flow amounted to USD 5.0 billion compared to USD 4.4 billion in the prior year.
Nine months
Total company net income was USD 6.4 billion, mainly due to higher operating income compared to USD 5.5 billion in the prior year. EPS increased to USD 3.05 from USD 2.50 in prior year.
Cash flows from operating activities amounted to USD 11.9 billion compared to USD 10.1 billion in the prior year. Free cash flow amounted to USD 11.0 billion compared to USD 9.3 billion in the prior year.
Q3 key growth drivers
Underpinning our financial results in the quarter is a continued focus on key growth drivers including:
| Kesimpta | (USD 657 million, +124% cc) sales growth was driven by increased demand, strong access and benefitting from a one-time revenue deduction adjustment in Europe |
| Entresto | (USD 1 485 million, +31% cc) sustained robust demand-led growth, benefitting from the adoption of guideline-directed medical therapy across regions |
| Kisqali | (USD 562 million, +76% cc) sales grew strongly across all regions, based on increasing recognition of consistent overall survival and quality of life benefits |
| Pluvicto | (USD 256 million, +217% cc) continued sales growth in the US. Supply now unconstrained, focusing on initiating new patients |
| Ilaris | (USD 335 million, +24% cc) sales grew across all regions |
| Scemblix | (USD 106 million, +157% cc) sales grew across all regions, demonstrating the high unmet need in CML |
| Leqvio | (USD 90 million, +165% cc) launch in the US and other markets ongoing, with focus on patient on-boarding, removing access hurdles and enhancing medical education |
| Cosentyx | (USD 1 329 million, +4% cc) continued demand growth across key regions, partly offset by US revenue deduction fluctuations across periods. Ex-US sales grew +15% (cc) |
| Promacta/Revolade | (USD 576 million, +10% cc) grew across all regions, driven by increased use in chronic ITP and severe aplastic anemia |
| Xolair | (USD 369 million, +13% cc) sales grew across most regions |
| Jakavi | (USD 427 million, +9% cc) sales grew in Emerging Growth Markets, Europe and Japan, driven by strong demand in both myelofibrosis and polycythemia vera |
| Tafinlar + Mekinist | (USD 482 million, +8% cc) sales grew in the US and Emerging Growth Markets, driven by demand in BRAF+ adjuvant melanoma and NSCLC indications |
| Lutathera | (USD 159 million, +19% cc) sales grew mainly in the US, Japan and Europe due to increased demand |
| Emerging Growth Markets* | Overall, grew +17% (cc). Growth in China (+14% cc, USD 848 million) *All markets except the US, Canada, Western Europe, Japan, Australia, and New Zealand |
Net sales of the top 20 products in 2023
| Q3 2023 | % change | 9M 2023 | % change | |||
| USD m | USD | cc | USD m | USD | cc | |
| Entresto | 1 485 | 31 | 31 | 4 400 | 31 | 33 |
| Cosentyx | 1 329 | 4 | 4 | 3 677 | -1 | 1 |
| Promacta/Revolade | 576 | 10 | 10 | 1 706 | 10 | 12 |
| Kesimpta - excl. revenue deduction adjust.* |
657 | 127 87 |
124 86 |
1 530 | 112 95 |
112 96 |
| Kisqali | 562 | 72 | 76 | 1 470 | 68 | 74 |
| Tafinlar + Mekinist | 482 | 7 | 8 | 1 436 | 10 | 13 |
| Tasigna | 464 | -5 | -5 | 1 402 | -3 | -1 |
| Jakavi | 427 | 11 | 9 | 1 276 | 9 | 11 |
| Lucentis | 363 | -20 | -22 | 1 174 | -20 | -19 |
| Xolair | 369 | 15 | 13 | 1 085 | 4 | 6 |
| Sandostatin | 338 | 15 | 15 | 998 | 7 | 8 |
| Ilaris | 335 | 23 | 24 | 979 | 18 | 20 |
| Zolgensma | 308 | -3 | -2 | 928 | -13 | -11 |
| Gilenya | 270 | -47 | -48 | 771 | -54 | -53 |
| Pluvicto | 256 | 220 | 217 | 707 | nm | nm |
| Exforge Group | 187 | 1 | 3 | 557 | -5 | -1 |
| Galvus Group | 181 | -15 | -4 | 539 | -17 | -10 |
| Diovan Group | 153 | -4 | -1 | 466 | -9 | -4 |
| Lutathera | 159 | 20 | 19 | 458 | 34 | 34 |
| Gleevec/Glivec | 144 | -19 | -17 | 433 | -24 | -21 |
| Top 20 brands total | 9 045 | 13 | 13 | 25 992 | 9 | 11 |
nm= not meaningful
* Sales growth benefiting from a one-time revenue deduction adjustment in Europe
R&D update - key developments from the third quarter
New approvals
| Leqvio | Approved in China and Japan as the first and only small interfering RNA (siRNA) therapy for LDL-C reduction |
| Cosentyx | In October, FDA approved the intravenous formulation in three indications: Psoriatic Arthritis, Ankylosing Spondylitis, and non-radiographic axial SpA |
Regulatory updates
| Kisqali | EU file submission in adjuvant early breast cancer setting; US submission planned for Q4 2023 |
| Adakveo | EC adopts decision endorsing CHMP recommendation to revoke conditional marketing authorization |
Results from ongoing trials and other highlights
| iptacopan | In October, Ph3 APPLAUSE-IgAN study interim analysis demonstrated clinically meaningful and highly statistically significant proteinuria reduction in patients with IgA nephropathy. The trial met its pre-specified interim analysis (9 months) primary endpoint, demonstrating superiority vs. placebo in proteinuria reduction, with safety consistent with previously reported data. Novartis plans to review interim data with regulatory authorities for accelerated approval; study continues with final readout at 24 months |
| remibrutinib | Ph3 REMIX-1 and REMIX-2 studies met all primary and secondary endpoints, showing fast, clinically meaningful improvements across urticaria disease activity scores. Remibrutinib demonstrated a favorable safety profile with rates of adverse events comparable to placebo and balanced liver function tests across both studies. Final (52 weeks) readout and submissions to health authorities are expected in 2024. Full data will be presented at upcoming medical meetings |
| Pluvicto | Ph3 PSMAfore study demonstrated clinically meaningful and statistically significant rPFS benefit in patients with PSMA+ mCRPC in the pre-taxane setting. Per updated analysis presented at ESMO, median rPFS more than doubled compared to ARPI switch. Patients on Pluvicto showed improved quality of life compared to daily oral ARPI, along with improvements in other clinically meaningful efficacy endpoints including PSA response, ORR, DOR and time to symptomatic skeletal event, with favorable safety. Pre-specified crossover-adjusted OS analysis demonstrated a HR of 0.80 (0.48, 1.33); the unadjusted ITT OS analysis was confounded by a high rate of crossover. Novartis is continuing to collect OS data, regulatory filings are anticipated in 2024 |
| Lutathera | Ph3 NETTER-2 study demonstrated clinically meaningful and statistically significant improvement in PFS (primary endpoint) in patients with newly diagnosed somatostatin receptor (SSTR)-positive, Grade 2 and 3, advanced gastroenteropancreatic neuroendocrine tumors (GEP-NETs) vs. high-dose long-acting octreotide alone. The trial also met its key secondary endpoint of ORR. No new or unexpected safety findings were observed and data are consistent with the already well-established safety profile of Lutathera. Data to be presented at an upcoming medical meeting and discussed with regulatory authorities, with submissions to follow |
| Kisqali | Ph3 NATALEE iDFS 500 event analysis complete. Updated data is consistent with the interim analysis results announced in March 2023 and will be communicated at an upcoming medical meeting. Health-related quality of life (HRQoL) analyses from Ph3 NATALEE trial demonstrated that patients with early breast cancer receiving adjuvant Kisqali plus ET for up to 3 years maintained physical and social functioning; psychological well-being; and overall health scores, compared to baseline. Data was presented at the ESMO Virtual Plenary 2023 |
| Leqvio | Long-term data from Ph3 ORION-8 demonstrated that Leqvio, in addition to statin therapy, provides consistent low-density lipoprotein cholesterol (LDL-C) reduction beyond six years of treatment in patients with atherosclerotic cardiovascular disease (ASCVD), increased risk of ASCVD or heterozygous familial hypercholesterolemia. Efficacy and safety were consistent with previously reported Ph3 results. Data was presented at ESC 2023 |
| GT005 (PPY988) |
Development in Geographic Atrophy secondary to dry-Age-related Macular Degeneration discontinued based on benefit-risk assessment. No new safety signals identified. Patients treated will be provided with long term safety follow up |
| Tislelizumab | Novartis and BeiGene mutually agreed to terminate the collaboration and license agreement for tislelizumab for certain markets. With the termination, BeiGene will re-assume all development and commercialization rights for tislelizumab, and Novartis will manufacture tislelizumab for certain markets. BeiGene will also provide Novartis with ongoing clinical supply of tislelizumab to support its clinical trials |
| ‘Front of Eye’ Assets | Divestment completed of ‘front of eye’ ophthalmology assets to Bausch + Lomb |
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 2023, Novartis repurchased a total of 74.9 million shares for USD 7.2 billion on the SIX Swiss Exchange second trading line. These repurchases included 52.8 million shares (USD 4.9 billion) under the USD 15 billion share buyback (announced in December 2021 and completed in June 2023) and 10.4 million shares (USD 1.1 billion) under the new up-to USD 15 billion share buyback announced in July 2023. In addition, 11.7 million shares (USD 1.2 billion) were repurchased to mitigate dilution related to participation plans of associates. Furthermore, 1.4 million shares (for an equity value of USD 0.1 billion) were repurchased from associates. In the same period, 12.2 million shares (for an equity value of USD 0.8 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 decreased by 64.1 million versus December 31, 2022. These treasury share transactions resulted in an equity decrease of USD 6.5 billion and a net cash outflow of USD 7.3 billion.
As of September 30, 2023, net debt excluding net debt related to discontinued operations increased to USD 10.8 billion compared to USD 7.2 billion total net debt at December 31, 2022. The increase was mainly due to the USD 7.3 billion annual dividend payment, net cash outflow for treasury share transactions of USD 7.3 billion and net M&A / intangible assets transactions of USD 2.9 billion. This increase in net debt was partially offset by USD 11.0 billion free cash flow.
As part of the spin-off, Sandoz incurred total bank debt of approximately USD 3.7 billion and paid approximately USD 3.0 billion in cash, including payment in satisfaction of certain intercompany indebtedness owed by Sandoz and its subsidiaries to Novartis and its affiliates as of September 30, 2023. This reduced the net debt position of Novartis by USD 3.0 billion.
As of Q3 2023, the long-term credit rating for the company is A1 with Moody’s Investors Service and AA- with S&P Global Ratings.
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