Net sales grew 2% (cc, -1% USD), as growth drivers more than offset Gleevec/Glivec impact
Innovation momentum maintained:
Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 36 of the Condensed Interim Financial Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year.
- Commenting on the results, Joseph Jimenez, CEO of Novartis, said:
"Novartis delivered another solid performance in the first quarter. Growth drivers, including Cosentyx and Entresto, more than offset generic erosion, mainly due to Glivec. The innovation momentum continued in the quarter, led by the launch of Kisqali, and the FDA Priority Review for CTL019 in the US. This reinforces our confidence in our next growth phase, which we expect to start in 2018."
First quarter Group financials
Net sales were USD 11.5 billion (-1%, +2% cc) in the first quarter, as volume growth of 7 percentage points was partially offset by the negative impact of generic competition (-3 percentage points) and pricing (-2 percentage points). All divisions reported growth in constant currencies.
Operating income was USD 1.9 billion (-22%, -19% cc). Core adjustments amounted to USD 1.1 billion (2016: USD 0.8 billion), including a net charge of USD 0.2 billion related to the discontinuation of RLX030 development.
Core operating income was USD 3.0 billion (-8%, -5% cc). Core operating income margin in constant currencies decreased 1.8 percentage points, mainly due to generic erosion of Gleevec/Glivec and investments behind new launches and the Alcon growth plan. Currency had a negative impact of 0.2 percentage points, resulting in a net decrease of 2.0 percentage points in US dollar terms to 26.1% of net sales.
Net income was USD 1.7 billion (-17%, -15% cc), declining less than operating income due to higher income from associated companies.
EPS was USD 0.70 (-18%, -15% cc), broadly in line with net income.
Core net income was USD 2.7 billion (-4%, -1% cc), declining less than core operating income due to higher income from associated companies.
Core EPS was USD 1.13 (-3%, -1% cc), broadly in line with core net income.
Free cash flow was USD 1.7 billion (USD +0.3 billion), mainly driven by higher cash flows from operating activities.
Innovative Medicines net sales were USD 7.7 billion (0%, +2% cc) in the first quarter, with volume growth of 7 percentage points driven by Cosentyx, Entresto, Promacta/Revolade, Jakavi, Tafinlar + Mekinist and Gilenya. Generic competition had a negative impact of 4 percentage points and pricing had a negative impact of 1 percentage point, both largely due to Gleevec/Glivec genericization in the US and Europe.
Operating income was USD 1.7 billion (-21%, -17% cc) due to generic erosion of Gleevec/Glivec, launch investments and the net charge of USD 0.2 billion related to the discontinuation of RLX030 development. Core operating income was USD 2.4 billion (-7%, -3% cc). Core operating income margin in constant currencies decreased by 1.7 percentage points due mainly to generic erosion and launch investments for Entresto, Cosentyx and Kisqali. Currency had a negative impact of 0.5 percentage points, resulting in a net decrease of 2.2 percentage points to 31.5% of net sales.
Sandoz net sales were USD 2.4 billion (-1%, +1% cc) in the first quarter, as volume growth of 9 percentage points was offset by 8 percentage points of price erosion. Global sales of Biopharmaceuticals (including biosimilars, biopharmaceutical contract manufacturing and Glatopa) grew +30% (cc) to USD 274 million, driven by strong performance of Zarxio (filgrastim) and Glatopa 20mg in the US.
Operating income was USD 343 million (-1%, -2% cc). Core operating income was USD 460 million (-5%, -6% cc). Core operating income margin in constant currencies decreased by 1.3 percentage points, mainly due to higher M&S investment, including biosimilars, and higher Other Expense. Currency had a positive impact of 0.4 percentage points, resulting in a net decrease of 0.9 percentage points to 18.9% of net sales.
Alcon net sales were USD 1.4 billion (-1%, +1% cc) in the first quarter. Vision Care sales (+4% cc) continued to grow, driven by strong performance of the daily contact lens portfolio, including continued double-digit growth of Dailies Total1. Surgical sales (-1% cc) were down, mainly due to continued competitive pressures in IOLs.
Operating loss was USD 43 million, compared to an income of USD 31 million in the prior year quarter. Core operating income was USD 187 million (-23%, -18% cc). Core operating income margin decreased by 3.1 percentage points in constant currencies, mainly impacted by higher M&S investment. Currency had a negative impact of 0.7 percentage points, resulting in a net margin decrease of 3.8 percentage points to 13.2% of net sales.
Underpinning our financial results in the first quarter is a continued focus on key growth drivers, including Cosentyx, Entresto, Promacta/Revolade, Jakavi, Tafinlar + Mekinist, Tasigna and Gilenya, as well as Biopharmaceuticals and Emerging Growth Markets.
Emerging Growth Markets
Benefitting from our continued focus on innovation, Novartis has one of the industry’s most competitive pipelines with more than 200 projects in clinical development.
Key developments from the first quarter of 2017 include:
The Alcon Division grew sales 1% (cc) in the first quarter and continued to execute against the growth plan, taking actions to accelerate innovation and sales, strengthen customer relationships and to improve the efficiency and effectiveness of operations.
In Vision Care (+4% cc), continued investments in direct to consumer advertising behind key brands in Europe and the US helped drive growth in contact lenses (+7% cc) for the fourth consecutive quarter.
Surgical (-1% cc) continued to strengthen its basic operations and improve supply levels, which led to improved customer service. The pipeline continued to advance with the approval of the AcrySof IQ ReSTOR +2.5D Multifocal Toric IOL with ACTIVEFOCUS in the US. The division also invested in expanding its new product launches, including CyPass and NGENUITY 3D.
In January 2017, Novartis announced a strategic review of Alcon. Options to maximize shareholder value of the Alcon Division are under consideration. A status update will be provided towards the end of 2017.
We continued to advance all of our productivity and quality programs in the first quarter:
Retaining a good balance between investment in the business, a strong capital structure and attractive shareholder returns remains a priority.
In January 2017, Novartis announced an up to USD 5 billion share buyback to be executed on the second trading line. In Q1 of 2017, Novartis repurchased 16.2 million shares under this buyback and 2.7 million shares to mitigate dilution related to equity-based participation plans of associates. In addition, 1.7 million shares were repurchased from associates, and 12.1 million treasury shares 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 8.5 million versus December 31, 2016. Novartis aims to fully offset the dilutive impact from equity-based participation plans of associates. These treasury share transactions resulted in a net cash outflow of USD 1.1 billion.
In the first quarter of 2017, Novartis issued bonds denominated in US dollars and euro for total notional amounts of USD 3.0 billion and USD 2.0 billion, respectively.
As of March 31, 2017 net debt increased by USD 7.0 billion to USD 23.0 billion. The increase was mainly driven by the USD 6.5 billion annual dividend payment, share repurchases, and M&A related payments.
The long-term credit rating for the company continues to be double-A (Moody’s Investors Service Aa3; S&P Global Ratings AA-; Fitch Ratings AA).
Barring unforeseen events
We confirm our outlook as presented at the beginning of 2017. Group net sales in 2017 are expected to be broadly in line with the prior year (cc), after absorbing the impact of generic competition, including the continued genericization of Gleevec/Glivec in the US and Europe.
From a divisional perspective, we expect net sales performance (cc) in 2017 to be as follows:
Group core operating income in 2017 is expected to be broadly in line with prior year to a low single digit decline (cc).
If mid-April exchange rates prevail for the remainder of 2017, the currency impact for the year would be negative 2 percentage points on sales and negative 3 percentage points on core operating income. The estimated impact of exchange rates on our results is provided monthly on our website.
A condensed interim financial report with the information listed in the index below can be found on our website at hugin.info/134323/R/2098294/794662.pdf.