On April 26, 2022 Novartis reported solid growth to start 2022, driven by our in-market key growth brands: Cosentyx, Entresto, Zolgensma and Kisqali (Press release, Novartis, APR 26, 2022, View Source [SID1234612953]). Our key launches including Kesimpta, Leqvio, Scemblix and Pluvicto are progressing well. Sandoz business dynamics continue to normalize from COVID impacts. The mid- stage pipeline remains on-track for 20+ potential significant pipeline assets with approval by 2026. The new organizational structure we announced is central to our growth strategy as a focused medicines company, making us more agile and competitive, enhancing patient and customer orientation, unlocking potential in our R&D pipeline, and driving value-creation through operational efficiencies."
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Novartis is a focused medicines company, continuing to build depth in five core therapeutic areas (Cardio-Renal, Immunology, Neuroscience, Solid Tumors and Hematology), strength in technology platforms (Gene Therapy, Cell Therapy, Radioligand Therapy, Targeted Protein Degradation and xRNA), and a balanced geographic footprint. Our confidence to grow in the near-term is driven by potential multi-billion-dollar sales from: Cosentyx, Entresto, Kesimpta, Zolgensma, Kisqali and Leqvio. To fuel further growth through 2030 and beyond, we have 20+ new assets with significant sales potential that could be approved by 2026. The strategic review of Sandoz is progressing; we expect to provide an update, at the latest, by the end of 2022. We remain disciplined and shareholder focused in our capital allocation as we balance investing in our business, through organic investments and value-creating bolt-ons, with returning capital to shareholders via our growing annual dividend and share buybacks. Novartis continued to make significant strides in building trust with society and consistently integrating access strategies into how we research, develop and deliver our medicines; reaching over 55 million patients through various access approaches in 2021. We are committed to net zero emissions across our value chain by 2040. Our culture journey towards an inspired, curious and unbossed organization continues, in order to drive performance and competitiveness in the long-term.
In April, we announced a new organizational structure to accelerate growth, strengthen the pipeline and increase productivity. The Pharmaceuticals and Oncology business units are being integrated into an Innovative Medicines business with separate US and International commercial organizations to increase focus, strengthen competitiveness and drive synergies. A new Strategy & Growth function combining corporate strategy, R&D portfolio strategy and business development is being created to further strengthen the pipeline with high-value medicines across internal and external opportunities. A new Operations unit combining Novartis Technical Operations and Customer & Technology Solutions units aims to generate economies of scale, drive productivity and create a strong technology and operational foundation. With the changes, Novartis expects to deliver SG&A savings of at least USD 1 billion, to be fully embedded by 2024.
Financials
First quarter
Net sales were USD 12.5 billion (+1%, +5% cc) in the first quarter driven by volume growth of 11 percentage points, price erosion of 3 percentage points and the negative impact from generic competition of 3 percentage points.
Operating income was USD 2.9 billion (+18%, +26% cc), mainly due to higher sales, increased productivity and lower impairments, partly offset by higher R&D and M&S investments.
Net income was USD 2.2 billion (+8%, +15% cc), mainly driven by higher operating income, partly offset by the loss of Roche income. Excluding the impact of Roche income, net income grew +32% (cc). EPS was USD 1.00 (+10%, +17% cc), growing faster than net income, benefiting from lower weighted average number of shares outstanding. Excluding the impact of Roche income, EPS grew +34% (cc).
Core operating income was USD 4.1 billion (+3%, +9% cc). Core operating income margin was 32.6% of net sales, increasing by 0.7 percentage points (+1.1 percentage points cc).
Core net income was USD 3.3 billion (-5%, 0% cc), as growth in core operating income was offset by the loss of Roche core income. Excluding the impact of Roche core income, core net income grew +11% (cc). Core EPS was USD 1.46 (-4%, +2% cc), benefiting from lower weighted average number of shares outstanding. Excluding the impact of Roche core income, core EPS grew +12% (cc).
Free cash flow amounted to USD 0.9 billion (-42% USD), compared to USD 1.6 billion in the prior year quarter, mainly due to the loss of Roche annual dividend (prior year USD 0.5 billion) and unfavorable working capital, partly offset by favorable hedging results. Excluding the impact of Roche annual dividend, free cash flow declined -14% (USD).
Innovative Medicines net sales were USD 10.2 billion (+1%, +4% cc) with volume contributing 9 percentage points to growth. Sales growth was mainly driven by Entresto, Kesimpta, Cosentyx, Xolair, Zolgensma and Kisqali. Generic competition had a negative impact of 3 percentage points mainly due to Afinitor, Gleevec and Exjade. Pricing had a negative impact of 2 percentage points. Sales in the US were USD 3.7 billion (+3%) and in the rest of the world were USD 6.5 billion (0%, +5% cc).
Sandoz net sales grew to USD 2.4 billion (+2%, +8% cc), benefiting from a lower prior year comparison as business dynamics continued to normalize from COVID impacts, with volume contributing 16 percentage points. Pricing had a negative impact of 8 percentage points. Sales in Europe grew +9% (cc), while sales in the US declined -2%. Global sales of Biopharmaceuticals grew to USD 515 million (+1%, +7% cc).
Q1 key growth drivers
Underpinning our financial results in the quarter is a continued focus on key growth drivers (ranked in order of cc contribution to Q1 growth) including:
Entresto (USD 1,093 million, +42% cc) sustained strong growth with increased patient share across most markets, driven by demand in heart failure
Kesimpta (USD 195 million) strong sales growth driven mainly by the US launch due to strong access and increased demand based on a favorable risk-benefit profile
Cosentyx (USD 1,159 million, +12% cc) driven by demand led volume growth in the US and Europe, with accelerating growth in other international markets
Xolair (USD 368 million, +17% cc) continued growth, driven by increasing demand in severe allergic asthma and chronic spontaneous urticaria
Zolgensma (USD 363 million, +18% cc) growth was driven by expanding access in Europe and Emerging Growth Markets
Kisqali (USD 239 million, +28% cc) grew across all geographies due to demand based on the longest overall survival benefit reported in HR+/HER2- advanced breast cancer
Jakavi (USD 389 million, +14% cc) growth was driven by strong demand in the myelofibrosis and polycythemia vera indications
Ilaris (USD 285 million, +18% cc) strong sales were driven by growth across all regions
Promacta/Revolade (USD 491 million, +9% cc) showed growth across most regions, driven by increased use in chronic ITP and as first-line treatment for severe aplastic anemia
Tafinlar + Mekinist (USD 403 million, +7% cc) grew due to demand in adjuvant melanoma and NSCLC
Mayzent (USD 79 million, +47% cc) grew in MS patients showing signs of progression
Scemblix (USD 25 million) launched in Q4 2021. Strong uptake demonstrating the high unmet need in CML
Sandoz Biopharmaceuticals (USD 515 million, +7% cc) continued to grow in Europe and international markets
Emerging Growth Markets* Overall, grew +12% (cc), with strong growth in China (+16% cc, USD 880 million).
*All markets except the US, Canada, Western Europe, Japan, Australia, and New Zealand
Net sales of the top 20 Innovative Medicines products in 2022
R&D update – key developments from the first quarter
New approvals
Pluvicto
(lutetium Lu 177 vipivotide tetraxetan) Approved in the US as the first targeted radioligand therapy for the treatment of progressive, PSMA positive metastatic castration-resistant prostate cancer
FDA also approved the complementary diagnostic imaging agent, Locametz (kit for the preparation of gallium Ga 68 gozetotide injection)
Vijoice
(alpelisib)* Granted accelerated approval by FDA for treatment of adult and pediatric patients with severe manifestations of PIK3CA-Related Overgrowth Spectrum (PROS)
Beovu Approved in the EU for treatment of visual impairment due to diabetic macular edema
Regulatory updates
Jakavi CHMP positive opinion for the treatment of patients aged 12 years and older with acute graft versus host disease or chronic graft versus host disease (GvHD) who have inadequate response to corticosteroids or other systemic therapies
Kymriah CHMP positive opinion for adult patients with relapsed or refractory follicular lymphoma after two or more lines of systemic therapy
Tislelizumab* EMA validated filings for tislelizumab for advanced or metastatic esophageal squamous cell carcinoma after prior chemotherapy, advanced or metastatic NSCLC after prior chemotherapy, and in combination with chemotherapy for previously untreated advanced or metastatic NSCLC
Results from ongoing trials and other highlights
JDQ443
(KRAS G12C inhibitor)* Demonstrated anti-tumor activity with acceptable safety in Ph1b/2 KontRASt-01 study in patients with advanced non-small cell lung cancer. Confirmed ORR was 57% (n= 4/7) at the recommended dose. Data was presented at AACR (Free AACR Whitepaper)
Kesimpta* Data from ASCLEPIOS and the ALITHIOS open-label extension demonstrated long-term efficacy and safety with continued reduced risk of disability worsening for up to 4 years and stable IgG levels. KYRIOS study showed Kesimpta treated patients can mount an immune response to the COVID-19 mRNA vaccine
Kisqali Ph3 MONALEESA-2 data showed a statistically significant overall survival increase of over 12 months for Kisqali-treated postmenopausal women with HR+/HER2- advanced or metastatic breast cancer. Additional analyses showed patients who received Kisqali plus letrozole as first-line therapy saw a 24% reduction in risk of death compared to those receiving letrozole alone, supporting first line use
Zolgensma New data reinforces the transformational benefit of Zolgensma. Ph3 SPR1NT study demonstrated that children with three copies of the SMN2 back-up gene who were treated pre-symptomatically, achieved age-appropriate motor milestones.
Descriptive post-hoc analyses of START, STR1VE-EU and STR1VE-US indicated children with SMA Type 1 achieved or maintained important measures of bulbar function following treatment including ability to speak and swallow
Others Collaboration with Alnylam announced to leverage its proven, proprietary siRNA technology to develop targeted therapy to provide an alternative to transplantation for patients with liver failure
License option agreement announced with Voyager Therapeutics for next-generation gene therapy vectors for neurological diseases
* Update was announced in early April 2022
Capital structure and net debt
Retaining a good balance between investment in the business, a strong capital structure and attractive shareholder returns remains a priority.
In Q1 2022, Novartis repurchased a total of 31.2 million shares for USD 2.7 billion on the SIX Swiss Exchange second trading line under the up-to USD 15 billion share buyback announced in December 2021. In addition, 1.1 million shares (for an equity value of USD 0.1 billion) were repurchased from employees. In the same period, 10.0 million shares (for an equity value of USD 0.3 billion) were delivered as a result of options exercised and share deliveries related to participation plans of employees. Novartis aims to offset the dilutive impact from equity based participation plans of employees over the remainder of the year. Consequently, the total number of shares outstanding decreased by 22.3 million versus December 31, 2021. These treasury share transactions resulted in an equity decrease of USD 2.5 billion and a net cash outflow of USD 2.4 billion.
As of March 31, 2022, net debt increased to USD 10.7 billion compared to USD 0.9 billion at December 31, 2021. The increase was mainly due to the USD 7.5 billion annual dividend payment and net cash outflow for treasury share transactions of USD 2.4 billion, partially offset by USD 0.9 billion free cash flow in Q1 2022.
As of Q1 2022, the long-term credit rating for the company is A1 with Moody’s Investors Service and AA- with S&P Global Ratings.
2022 outlook
Barring unforeseen events
Innovative Medicines Sales expected to grow mid single digit
Core OpInc expected to grow mid to high single digit, ahead of sales
Sandoz Sales expected to be broadly in line with prior year
Core OpInc expected to decline low to mid single digit
Group Sales expected to grow mid single digit
Core OpInc expected to grow mid single digit
Our guidance assumes that we see a continuing return to normal global healthcare systems, including prescription dynamics, and that no Sandostatin LAR generics enter in the US.
Foreign exchange impact
If late-April exchange rates prevail for the remainder of 2022, the foreign exchange impact for the year would be negative 4 percentage points on net sales and negative 5 percentage points on core operating income. The estimated impact of exchange rates on our results is provided monthly on our website.
Executive Committee announcement
Novartis has appointed Aharon (Ronny) Gal Ph.D. as Chief Strategy & Growth Officer effective no later than August 1, 2022. Dr. Gal will lead the newly created Strategy & Growth function that combines corporate strategy, R&D portfolio strategy and business development. Dr. Gal joins Novartis from Sanford Bernstein where he is the Senior Analyst covering the US Biopharmaceutical industry. He brings over 20 years of life-sciences industry experience including financial research and analytics, management consulting and business development. He is a thought-leader in the healthcare sector and is widely recognized for his deep thematic research across therapeutic areas, technology platforms and key industry topics such as the US drug delivery system and efforts to reform it. Prior to joining Bernstein, Dr. Gal worked at Canon and the Boston Consulting Group. Dr. Gal was awarded a Ph.D. from the Massachusetts Institute of Technology and holds a B.Sc. from Emory University. He will report to Vas Narasimhan and join the Executive Committee of Novartis.
1Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 35 of the Condensed Interim Financial Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year.
2 A reconciliation of 2021 IFRS results and non-IFRS measures core results and free cash flow to exclude the impacts of the 2021 divestment of our Roche investment can be found on page 40 of the Condensed Interim Financial Report. The free cash flow impact represents the dividend received in Q1 2021 from Roche in relation to the distribution of its 2020 net income.