q4 and full year 2014 results -...
TRANSCRIPT
Q4 and Full Year 2014 Results
Investor presentation
January 27, 2015
Disclaimer
These materials contain forward-looking statements that can be identified by words such as “potential,” “expected,” “will,” “planned,” or similar terms, or by express or implied discussions
regarding potential new products, potential new indications for existing products, or regarding potential future revenues from any such products; potential shareholder returns or credit
ratings; or regarding the potential completion of the announced transactions with GSK and CSL, or regarding potential future sales or earnings of any of the businesses involved in the
announced transactions with GSK, Lilly or CSL, and regarding any potential strategic benefits, synergies or opportunities as a result of the announced transactions; or regarding potential
future sales or earnings of the Novartis Group or any of its divisions; or by discussions of strategy, plans, expectations or intentions. You should not place undue reliance on these
statements. 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. There can be no guarantee that any new products will be approved for sale in any market, or that any new indications will be approved for any
existing products in any market, or that any approvals which are obtained will be obtained at any particular time, or that any such products will achieve any particular revenue levels. Nor
can there be any guarantee that the announced transactions with GSK and CSL will be completed in the expected form or within the expected time frame or at all. Neither can there be
any guarantee that Novartis will be able to realize any of the potential strategic benefits, synergies or opportunities as a result of the transactions with GSK, Lilly or CSL. Neither can there
be any guarantee that Novartis or any of the businesses involved in the transactions will achieve any particular financial results in the future. Nor can there be any guarantee that
shareholders will achieve any particular level of shareholder returns. Neither can there be any guarantee that the Novartis Group, or any of its divisions, will be commercially successful in
the future, or achieve any particular credit rating. In particular, management's expectations could be affected by, among other things, unexpected regulatory actions or delays or
government regulation generally, including an unexpected failure to obtain necessary government approvals for the transactions, or unexpected delays in obtaining such approvals; the
potential that the strategic benefits, synergies or opportunities expected from the announced transactions, including the divestment of our former Animal Health Division to Lilly, may not
be realized or may take longer to realize than expected; the inherent uncertainties involved in predicting shareholder returns or credit ratings; the uncertainties inherent in research and
development, including unexpected clinical trial results and additional analysis of existing clinical data; the Company’s ability to obtain or maintain proprietary intellectual property
protection, including the ultimate extent of the impact on the Company of the loss of patent protection and exclusivity on key products which commenced in prior years and will continue
this year; unexpected manufacturing or quality issues; global trends toward health care cost containment, including ongoing pricing pressures; uncertainties regarding actual or potential
legal proceedings, including, among others, actual or potential product liability litigation, litigation and investigations regarding sales and marketing practices, government investigations
and intellectual property disputes; general economic and industry conditions, including uncertainties regarding the effects of the persistently weak economic and financial environment in
many countries; uncertainties regarding future global exchange rates, including as a result of recent changes in monetary policy by the Swiss National Bank and the European Central
Bank; uncertainties regarding future demand for our products; uncertainties involved in the development of new healthcare products; uncertainties regarding potential significant breaches
of data security or disruptions of the Company’s information technology systems; 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 these materials 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.
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 2
Agenda
Group overview Joseph Jimenez
Chief Executive Officer
Financial review Harry Kirsch
Chief Financial Officer
Pharmaceuticals David Epstein
Division Head, Novartis Pharmaceuticals
Closing Joseph Jimenez
Chief Executive Officer
Q&A session Executive team
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 3
Solid sales growth, margin expansion and major innovation in 2014
Sales up +3% in cc vs. PY, core margin +1.2ppts in cc vs. PY and FCF up +12% in USD1
Dividend of CHF 2.60 per share proposed (up 6% in CHF)
Strong progress on innovation
• LCZ696 file submitted in EU and US
• Zykadia™ approved in US for non small cell lung cancer
• Cosentyx™ approved in EU, US and Japan for psoriasis2
Portfolio transformation on track; Novartis Animal Health divestment closed on Jan 1st
1 2014 Group growth rates are based on 2013 data excluding the divested blood transfusion diagnostics unit. This measure, as well as constant currencies (cc), core results, and free cash flow are non-IFRS measures.
An explanation of these non-IFRS measures and reconciliation tables can be found beginning on page 54 of the Condensed Financial Report 2 CosentyxTM EU and US approval received in January 2015
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 4
Summary of 2014 financial results
FY
(in USD m) 2014 % USD % cc
Net Sales 57 996 1 3
Core Operating Income 14 616 3 8
Operating Income 10 736 1 7
Net Income 10 280 12 19
Core EPS (USD) 5.23 4 10
EPS (USD) 4.21 14 20
Free Cash Flow 10 762 12
Change vs. PY1
1 2014 Group growth rates are based on 2013 data excluding the divested blood transfusion diagnostics unit. This measure, as well as constant currencies (cc), core results, and free cash flow are non-IFRS measures.
An explanation of these non-IFRS measures and reconciliation tables can be found beginning on page 54 of the Condensed Financial Report
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 5
2014 focus
1 All uncompleted transactions are subject to closing conditions
Operational
excellence
Transforming
the company
Strengthened innovation
Delivered strong financial results
Continued focus on quality
Transforming the portfolio1
Capturing cross-divisional synergies
Reshaping the culture of the company
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 6
We have seen a series of important innovations
and regulatory approvals in the last year
Approval
US
FDA granted
accelerated approval
for Meningitis B2
Recommended for
approval by FDA
Advisory Committee,
all indications3
Cosentyx™ approved
in EU, US and Japan
for psoriasis1
LCZ696 Ph III in chronic
heart failure, file
submitted EU and US
QVA149 and NVA237
met primary Ph III
endpoints, file
submitted US
Operational excellence
Strengthened innovation
CTL019 FDA
Breakthrough Therapy
designation
1 CosentyxTM EU and US approval received in January 2015 2 Bexsero® FDA accelerated approval received in January 2015
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 7
Positive CHMP
recommendation for
polycythemia vera4
3 Filgrastim recommended for approval by FDA Advisory Committee in January 2015 4 Jakavi® recommended for approval by CHMP in January 2015
Alcon has made important acquisitions and collaborations
Innovative contact lens and
intraocular lens technology
Acquired ORA System®
Complements Alcon’s industry-
leading cataract refractive suite
Collaboration Acquisition
Operational excellence
Strengthened innovation
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 8
Growth in sales and core operating income across all divisions
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 9
Vaccines1 1 537
Consumer
Health
4 279
Sandoz 9 562
Alcon 10 827
Pharmaceuticals 31 791
Net sales Core Operating Income
% Change vs. PY (in cc)
+1%
+6%
+7%
+10%
+8%
+4%
+8%
+7%
+5%2
+72%2
Net sales 2014 (in USD m)
1 Vaccines growth rates are based on 2013 data excluding the divested blood transfusion diagnostics unit. Vaccines results exclude certain intellectual property rights and related other revenues which will be retained by
Novartis and are now reported under Corporate activities, with 2013 reported results being restated for this impact. See page 54 of the Condensed Interim Financial Report 2 Includes cessation of depreciation since portfolio transformation announcement date of +13% pts for Consumer Health and +31% pts for Vaccines. Lower loss in Vaccines for 2014
Operational excellence
Delivered financial results
Emerging Growth Markets
Two factors continue to drive our growth
1 Emerging Growth Markets 2014 vs. PY (% cc). Group growth rates based on 2013 data excluding the divested blood transfusion diagnostics unit. See page 83 of the Condensed Interim Financial Report
+18% growth to 32%
of Group sales
+11%
Growth Products
1
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 10
Operational excellence
Delivered financial results
Pharmaceuticals net sales
(in USD bn, growth in % cc)1
31.8
FY 2013 FY 2014
32.2
+1% cc -1% USD
Growth Products (+17%): now contributing 43% of
total Pharmaceuticals sales vs. 37% in 2013
Emerging Growth Markets (+11%): driven by strong
double digit growth in China, Brazil and Turkey
Absorbed generic impact of -7 percentage points
Pharmaceuticals grew +1% vs. PY in cc in 2014,
driven by Growth Products and Emerging Growth Markets
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 11
1 All growth shown vs. PY in constant currencies (cc)
Operational excellence
Delivered financial results
Alcon net sales
(in USD bn, growth rates in % cc)1
Operational excellence
Delivered financial results
+6%
FY 2014
10.8
FY 2013
10.5
Surgical (+7%): Strong equipment sales driven by
Centurion® and cataract and vitreoretinal disposables
Ophthalmic Pharmaceuticals (+5%): Double-digit
growth of Systane® and glaucoma fixed combination
products
Vision Care (+4%): Strong Dailies Total1® and
AirOptix® growth
Alcon grew +6% vs. PY in cc in 2014, driven
by strong surgical performance
1 All growth shown vs. PY in constant currencies (cc)
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 12
Sandoz grew +7% vs. PY in cc in 2014, driven by
US, Western Europe and Emerging Growth markets
Sandoz net sales
(in USD bn, growth rates in % cc)1
+7%
FY 2014
9.6
FY 2013
9.2
Strong Sandoz performance driven by:
US, Western Europe2 and Emerging Growth
Markets
Strong sales of valsartan monotherapy
Biosimilars and oncology injectables
1 All growth shown vs. PY in constant currencies (cc) 2 Excluding Germany
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 13
Operational excellence
Delivered financial results
Our productivity initiatives contribute to growth
of our core operating margin1
Procurement Core Marketing and sales
Savings (in USD bn)
Manufacturing footprint
24 manufacturing sites
restructured or divested since
20102
M&S spend (% of sales in USD)
1.61.5
2014 2013 2014
24.4%
2013
25.2%
1 2014 group growth rates are based on 2013 data excluding the divested blood transfusion diagnostics unit. This measure, as well as constant currencies (cc), core results, and free cash flow are non-IFRS measures.
An explanation of these non-IFRS measures and reconciliation tables can be found beginning on page 54 of the Condensed Financial Report
2 Represents the total number of production sites that have been, or are in the process of being, restructured or divested since 2010
1
Operational excellence
Delivered financial results
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 14
The continued focus on Quality system upgrades
across our network continues to show results
247 Health authority
inspections
in 20141
Closed FDA Warning Letter for
three Sandoz sites in North
America
Unterach, Austria FDA
inspection in December 2014
concluded with zero
observations
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 15
1 Sites deemed unsatisfactory were Sandoz Kalwe (MCC) and Pharmaceuticals Japan (MHLW). Inspections still pending are Sandoz Kalwe (FDA) and Sandoz Turbhe (FDA)
Operational excellence
Continued focus on quality
Novartis portfolio transformation is progressing on track
Milestones1
9 Jan 2014
Closed divestiture
of blood
transfusions
diagnostics
business
22 Apr
Announced agreements to:
Acquire GSK oncology
products
Create Consumer Health
JV with GSK
Divest Novartis Vaccines
(excl. flu)
Divest Novartis Animal
Health to Eli Lilly
1 Jul
Established
Novartis
Business
Services
26 Oct
Announced
agreement to
divest flu
business to CSL
1 Jan 2015
Closed
divestiture of
animal health
business
1 All uncompleted transactions are subject to closing conditions
Transforming the company
Portfolio transformation
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 16
We created Novartis Business Services to deliver
high-quality services to the divisions at lower costs
Key 2014 activities
New cross-divisional organization structure in place
Costs under NBS responsibility were flat in 2014, at 2013 levels
Additional synergies e.g., through Customers First
Transforming the company
Cross-divisional opportunities
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 17
Agenda
Group overview Joseph Jimenez
Chief Executive Officer
Financial review Harry Kirsch
Chief Financial Officer
Pharmaceuticals David Epstein
Division Head, Novartis Pharmaceuticals
Closing Joseph Jimenez
Chief Executive Officer
Q&A session Executive team
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 18
Group sales are expected to grow at a low to mid-single digit rate +3%
Group core operating income is expected to grow ahead of
sales (cc) in 2014, at a mid to high-single digit rate (cc) +8%
Net Sales Growth:
Pharmaceuticals sales growth in line with 2013 +1%
Alcon sales growth mid to high-single digit +6%
Sandoz sales growth mid to high-single digit +7%
Performance delivered as per upgraded guidance
FY 2014 (growth vs. PY2 in % cc)
2014 Full Year Guidance1
(all in cc)
1 Issued in Q2 2014, reconfirmed in Q3 2014 2 2014 Group growth rates are based on 2013 data excluding the divested blood transfusion diagnostics unit. This measure, as well as constant currencies (cc), core results, and free cash flow are non-IFRS measures. An
explanation of these non-IFRS measures and reconciliation tables can be found beginning of page 54 of the Condensed Financial Report
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 19
Q4 FY
(in USD m) 2014 % USD % cc 2014 % USD % cc
Net Sales 14 633 -2 4 57 996 1 3
Core Operating Income 3 322 1 9 14 616 3 8
Operating Income 1 172 -49 -39 10 736 1 7
Net Income 1 487 -26 -16 10 280 12 19
Core EPS (USD) 1.21 3 12 5.23 4 10
EPS (USD) 0.62 -23 -13 4.21 14 20
Free Cash Flow 4 419 41 10 762 12
Change vs. PY Change vs. PY
Strong leverage in Q4 and Full Year
1 2014 Group growth rates are based on 2013 data excluding the divested blood transfusion diagnostics unit. This measure, as well as constant currencies (cc), core results, and free cash flow are non-IFRS measures. An
explanation of these non-IFRS measures and reconciliation tables can be found beginning of page 54 of the Condensed Financial Report 2 2014 results exclude depreciation and amortization related to discontinuing operations from the portfolio transformation announcement date
1
2
1
2
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 20
1
3
7
7
USD growth
Currency
CC growth
Generics impact3 -4
Underlying growth2
-2
Price 0
Underlying volume 22
3
8
21
-5
-13
-1
Strong volume growth more than offsets generic impact in FY
Group FY 2014 (growth vs. PY1 in %)
Core operating income Net sales
1 2014 Group growth rates are based on 2013 data excluding the divested blood transfusion diagnostics unit. This measure, as well as constant currencies (cc), core results, and free cash flow are non-IFRS measures. An
explanation of these non-IFRS measures and reconciliation tables can be found beginning of page 54 of the Condensed Financial Report 2 Underlying growth is the growth rate excluding the impact of generic competition and is calculated by adding back sales and core operating income resulting from generic impact to the reported figures 3 Generics impact on sales amounted to USD 2.4 billion for the full year
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 21
All divisions contributed to FY Group core margin improvement
of 1.2% points
FY 2014 vs. PY
Core operating
income
(in % cc)
4
8
7
Pharmaceuticals
Alcon
Sandoz
Group1
Net
sales
(in % cc)
1
6
7
3 8
Core margin
change in cc
(% pts)
1.1
0.6
0.1
1.23
Core ROS
(%)
29.9
35.2
16.4
5 Vaccines1,2 10 nm
4.33 72 Consumer Health 8 10.6
25.2
1 2014 Group and Vaccines growth rates are based on 2013 data excluding the divested blood transfusion diagnostics unit. This measure, as well as constant currencies (cc), core results, and free cash flow are non-IFRS
measures. An explanation of these non-IFRS measures and reconciliation tables can be found beginning of page 54 of the Condensed Financial Report 2 Vaccines results exclude certain intellectual property rights & related other revenues which will be retained by Novartis and now reported under Corporate activities, with 2013 reported results being restated for this impact 3 Includes cessation of depreciation since portfolio transformation announcement date of +0.9% pts for Consumer Health, +6.1% pts for Vaccines, and +0.2% pts for total Group
nm3
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 22
FY Group core margin improvement mainly from Functional Costs
Group core R&D1 as % sales (USD)
FY 2014
24.4%
FY 2013
25.2%
FY 2014
16.5%
FY 2013
16.8%
Group core M&S1 as % sales (USD)
-0.6% pts (cc)
-0.3% pts (USD)
-0.8% pts (cc)
-0.8% pts (USD)
1 2014 Group growth rates are based on 2013 data excluding the divested blood transfusion diagnostics unit. This measure, as well as constant currencies (cc), core results, and free cash flow are non-IFRS measures.
An explanation of these non-IFRS measures and reconciliation tables can be found beginning of page 54 of the Condensed Financial Report
5.1%
FY 2014 FY 2013
5.3%
-0.2% pts (cc)
-0.2% pts (USD)
Group core G&A1 as % sales (USD)
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 23
New portfolio would have improved core operating margin
by 2.5%pts on a full-year basis in 2014
Continuing
Operations3 52.2
Cessation 0.0
Discontinuing
Operations 5.8
58.0 Current Portfolio
0.1
14.5
0.2
14.6
Net sales Core operating income (in USD m)
Core operating margin
25.2%1
27.7%
+2.5%pts2
1 Includes cessation of depreciation since portfolio transformation announcement date of +0.2% pts 2 Without the benefit of the cessation of depreciation, Core Operating Income difference would have been +2.7% pts 3 Continuing Operations do not yet include the results from oncology assets to be acquired from GSK on closing of the transaction or the results from the 36.5% interest in the GSK/Novartis consumer healthcare OTC joint
venture interest which will be created at the same time
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 24
0 -2
-7 -6
-1 -2
Increasing negative currency impact in Q4 due to weakening of Euro,
Yen, Ruble and key Emerging Market currencies
Net sales Core operating income
Currency impact vs. PY (in % points)
2013 2014
Q4 Q1 Q2 Q3 Q4
FY impact: -2%
FY
20151 2013 2014
Q4 Q1 Q2 Q3 Q4
FY impact: -5%
FY
1 Continuing Operations impact only, assuming the stated FX rates prevail for the remainder of 2015
20151
-8
-8
-3-3
-6-8 -4
-12
Jan 16, 2015 rate prevailing
Jan 8, 2015 rate prevailing
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 25
Net salesOperating
Expenses Net Sales
Operating
Income
EUR 26% 25% -12% -3% -3%
CHF
(Jan 8, 2015 rate)
CHF
(Jan 16, 2015 rate)
JPY 7% 5% -9% -1% -1%
RUB 2% 1% -41% -1% -2%
USD 36% 39% n/a n/a n/a
Selected major
currencies
Jan 16, 2015
FX rates vs
2014 average2
-10%2%
5%2% 0%13% -2%
2014 currency overview 1 Fx Impact on:
4%0%13%
FX
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 26
Impact of recent changes in exchange rates – if applied to 2014
results
Major currencies overview and the respective impact
if January 16, 2015 FX rates are applied to 2014
1 Continuing operations currency overview as per 2014 annual report page 138 and SEC form 20-F page 192. Impact of selected major currencies only; others may impact results as well 2 FX rates based on Bloomberg
FY Free Cash Flow of USD 10.8 bn, USD 1.2 bn higher than 2013
FY Free Cash Flow
(in USD bn)
3.14.4
FY 2014 FY 2013
10.8 9.6
+1.2 Key reasons for variance vs. PY:
Higher operating income2 (net of negative FX)
Hedging gains
Higher investments in intangible assets
1 2014 Group growth rates are based on 2013 data excluding the divested blood transfusion diagnostics unit. This measure, as well as constant currencies (cc), core results, and free cash flow are non-IFRS measures.
An explanation of these non-IFRS measures and reconciliation tables can be found beginning of page 54 of the Condensed Financial Report 2 Operating income after adjusting for non-cash items
1
9M
Q4
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 27
Net debt decreased by USD 2.3 billion to USD 6.5 billion
(in USD bn)
1 Mainly due to divestment of the Vaccines blood transfusion diagnostics unit net of tax (USD 1.1 bn) and Idenix (USD 0.8 bn) 2 Related to employee participation programs 3 Including mainly repurchases on the first (USD 4.1 bn) and second trading lines (USD 2.4 bn)
-5
-9
-8
-7
-6
-4
2
1
0
-1
-2
-3
Share
repurchases3
Dec 31, 2013
10.8
Dec 31, 2014
Free Cash Flow
2.3
-6.8
Dividends Net divestment
proceeds1
-6.5
-8.8
2.1
Others
2.4
Proceeds
from options
exercised 2
-6.9
0.7
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 28
2.4
5
2.6
0
2.7
6
2.9
63
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
18th consecutive dividend growth proposed1
(payout ratio of 71%2 in 2014)
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 29
1 Proposal to shareholders at the 2015 Annual General Meeting, taking place on February 27, 2015 2 Payout ratio is calculated by converting into USD the proposed total gross dividend amount in CHF at the CHF-USD exchange rate of January 21, 2015 based on an estimated number of shares outstanding on dividend
payment date and dividing it by the USD consolidated net income attributable to shareholders of Novartis AG in the 2014 Novartis Group consolidated financial statements effective December 31, 2014 3 Dividend per share in USD is calculated by converting into USD the proposed dividend per share in CHF at the CHF-USD exchange rate of January 21, 2015 (1 CHF=USD 1.14)
CHF
USD
Proposed1 dividend growth
2014 vs. 2013:
6% in CHF, 7% in USD
Outlook for continuing operations in 2015 versus continuing
operations in 2014
Barring unforeseen events
Continuing operations1 net sales expected to grow mid-single digit (cc)2:
• Pharmaceuticals: mid-single digit growth (cc)
• Alcon: mid to high-single digit growth (cc)
• Sandoz: mid-single digit growth (cc)
Continuing operations1 core operating income expected to grow ahead of sales at a high-single digit rate (cc)2
Outlook based on a modelling assumption that the transaction with GSK will close on March 31, 2015, and that the transaction with CSL will close on December 31, 20153
1 Continuing operations includes Pharmaceuticals, Alcon, Sandoz, Corporate, the to be acquired Oncology assets from GSK and contribution from the OTC Joint Venture (contribution in income from associated
companies). The results from the oncology assets from GSK and the OTC Joint Venture are only included as of the date of closing 2 Pro-forma growth, assuming continuing operations in 2014 and 2015 3 Assumption for modelling purposes only. Novartis continues to expect the GSK transactions to be completed in the first-half of 2015 and the transaction with CSL to be completed in the second-half of 2015
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 30
Key core margin drivers 2015 for continuing operations1
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 31
Portfolio transformation
(mostly in H2)
Pharmaceuticals growth
products
NBS holding costs flat
Full-year impact of 2014
restructurings
Ongoing productivity programs
in Divisions
Impact from generic
competition (more in H1)
Launch and pipeline
investments
FX impact (Swiss franc,
yen, euro, ruble)
1 Based on an assumption that the transaction with GSK will close on March 31, 2015, and that the transaction with CSL will close on December 31, 2015. Assumption for modelling purposes only. Novartis continues to
expect the GSK transactions to be completed in the first-half of 2015 and the transaction with CSL to be completed in the second-half of 2015
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 32
• Streamline and consolidate (e.g. optimize size of the organization, rationalize IT
applications)
• Optimize geographical footprint (centralization and offshoring of certain transactional
activities)
• Leverage scale (e.g. accelerate Sourcing productivity, vendor spend and process
optimization)
• Cross-divisional coordination (e.g. Real Estate and Facility Services spend
optimization)
NBS will manage about USD 5 billion spend in 2015
Novartis Business Services fully operational and contributing to
margin improvement in 2015
Improvement in core margin expected despite FX headwind in 2015
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 33
Portfolio transformation
2014 reported core ROS1
Total Group
25.2%
2014 reported core ROS1
Continuing operations
27.7%
Improvement between reported Total Group 2014 core margin and 2015 continuing operations core margin, despite FX impact
1 Core return on sales 2 Assuming Jan 16, 2015 rates prevail for the remainder of 2015
Sales: mid-single digit (cc) growth
Core operating income: high-single digit (cc) growth
Illustrative 2015 core ROS1
Continuing operations (cc)
2015 core ROS1
Continuing operations
(USD2)
FX impact on sales2: -7% FX impact on core operating income2: -12%
2
3
1
Outlook
Agenda
Group overview Joseph Jimenez
Chief Executive Officer
Financial review Harry Kirsch
Chief Financial Officer
Pharmaceuticals David Epstein
Division Head, Novartis Pharmaceuticals
Closing Joseph Jimenez
Chief Executive Officer
Q&A session Executive team
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 34
Change vs. PY
(in USD m) FY 2014 FY 2013 % USD % cc
Net Sales 31 791 32 214 -1 +1
Core Operating Income 9 514 9 523 0 +4
Operating Income 8 471 9 376 -10 -5
Core Operating Income margin 29.9% 29.6%
Operating Income margin 26.6% 29.1%
Free Cash Flow 7 918 8 332 -5
Pharmaceuticals delivered sales growth with margin expansion
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 35
Growth products1 now represent 43% of total division sales
Growth products net sales (in USD bn)
% of total division sales
37% 43%
FY 2014
+17% cc
FY 2013
13.7 12.0
1 Growth products comprise products launched in 2009 or later, or products with exclusivity until at least 2018 in key markets (EU, US, Japan)
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 36
Sales Growth
(in % cc)
Gx impact
(in USD bn)
+4% +2% +3% +1%
-1.1bn
-1.9bn -2.2bn -2.4bn
Net sales growth and impact from generics
2011 2012 2013 2014
2014 marks another year of delivering sales growth despite
most substantial Gx impact in years
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 37
Emerging Growth Markets1: accelerated growth to double-digit
and now contributing 26% of Pharmaceuticals sales
1 Emerging Growth Markets comprise of all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand
Pharmaceuticals Division net sales (in %)
2012 6%
2013 9%
2014 11%
2015 Growth likely to be lower
26%
74%
Emerging Growth Markets rates (in % cc)
Established Markets Emerging
Growth Markets
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 38
Unparalleled growth platform1 with exclusivity until 2018 and
beyond
Indication
FY 2014
Net sales
USD m
FY 2014
Growth vs. PY
% cc
Multiple sclerosis 2 477 30%
Wet age-related macular degeneration, Diabetic macular
edema, Retinal vein occlusion, mCNV 2 441 5%
Metastatic renal cell carcinoma, TSC SEGA, pNET,
HR+/HER2-advanced breast cancer 1 575 22%
Chronic myeloid leukemia 1 529 24%
Diabetes mellitus, Type 2 1 224 6%
Severe allergic asthma and chronic spontaneous
urticaria 777 30%
Chronic obstructive pulmonary disease 484 93%
Myelofibrosis 279 72%
1 Key products for growth of Pharmaceuticals Division 2 Impacted by Galvus in Germany, where distribution was stopped July 1, 2014. Excluding Germany, FY growth vs. PY is +15%
3
2
4 4
3 Onbrez® Breezhaler® approved as Arcapta® Neohaler® in the US 4 Net sales and growth of Onbrez®, Seebri® and Ultibro®
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 39
Gilenya® net sales and growth (in USD m, growth in % cc)
2014 2013
US Ex-US
911
+45%
1 287
1 023
+16%
1 190
Growth was +30% (FY) and +32% (Q4) vs. PY
Continued Gilenya adoption
Over 114,000 patients treated to date with Gilenya
worldwide1
#1 in value share in Multiple Sclerosis (ex-US)2
Gilenya® growth fueled by consistent increase of
new patients on treatment
1 Worldwide Novartis estimate in clinical trials and in post-marketing setting 2 Leading share in the Multiple Sclerosis segment defined as global sales excluding USA. Source: Evaluate Pharma
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 40
Lucentis® growth driven by new launches which
achieved blockbuster status
Growth was +5% (FY) and +1% (Q4) vs. PY
New indications contributed 41% of sales in 2014
(up from 27% in 2013) reaching USD 1bn
The pre-filled syringe was launched in key
markets, incl. Germany, France, Italy, Spain, UK,
Japan and Australia
63% 59%
2013 2014
wAMD DME RVO mCNV
Lucentis® Ex-US1 net sales2 and growth (in USD m, growth in % cc)
41%3 27%
2 441 2 383
+5%
1 Genentech has rights to Lucentis® in the US 2 Sales indication split based on market research and Novartis estimates 3 Share of new indications in Q4 was 43%
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 41
Tasigna® accounted for 33% of the CML franchise sales1
and grew solidly
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 42
Ex-US Sales US Sales Growth was +24% (FY) and +30% (Q4) vs. PY
• US growth mostly driven by increased usage of Tasigna in 1st line CML patients
• Tasigna sales represent 24% of the total Tasigna and Gleevec®/Glivec® sales2
ENESTnd Landmark 6-year follow-up showed
• Higher rates of early, deep and sustained molecular response, including MMR3 and MR4.54 (vs. imatinib)
• More patients do not progress (vs. imatinib)
Tasigna® sales and growth (in USD m, growth in % cc)
1 Share in the combined sales of Tasigna plus Gleevec/Glivec in so far as it concerns CML 2 Gleevec/Glivec sales across all indications, including Ph+ CML and KIT+ GIST and others 3 Major Molecular Response - defined as 0.1% or less of BCR-ABL as measured by IS RT-Q-PCR 4 Molecular Response of ≥ 4.5-log reduction in BCR-ABL transcripts – defined as an extremely low level of detectable BCR-ABL protein (measured in the blood at 0.0032% or less on a standardized International Scale)
2014 2013
540428
+26% 838
+23%
989
COPD portfolio sales growth was +93% (FY) and
+94% (Q4) vs. PY2
Ultibro is 1st to market dual bronchodilator in the
EU and Japan
Submissions to FDA completed (Dec 2014)
Ultibro® Breezhaler® launched in ex-US markets with strong
penetration; US submission completed
0%
2%
4%
6%
8%
1 2 3 4 5 6 7 8 9 10 11 12 13
Germany Spain Greece
1 IMS Midas Monthly, Nov’14; Share of sales in the combined segment of: R3A3 + R3F1 + Tiotropium, Glycopyrronium, Aclidinium + LABA/LAMAs + Roflumilast. Months since launch in each market 2 Ultibro Breezhaler sales were USD 118 m (FY) and USD 51 m (Q4)
Ultibro® Breezhaler® value share1
(in % on a monthly basis)
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 43
Jakavi®1 showed strong growth in 2014 with second
indication expected in 2015
Jakavi® net sales (ex-US)1
(in USD m)
Growth was +72% (FY) and +91% (Q4) vs. PY
Growth in 1st indication of MF2 driven by
• Continued in-market growth in >70 countries
• Recent launches in Japan, Italy and Spain
>50 published abstracts across MF and PV3 at
ASH4 reinforcing safety / efficacy profile
Launch of 2nd indication (PV) in Q2 2015 in EU5
Target patient populations in MF and PV are of
similar size6
30
163
279
2012 2013 2014
1 Jakavi is licensed from Incyte for development and commercialization outside the US 2 Myelofibrosis 3 Polycythemia vera 4 American Society of Hematology (December 2014) 5 CHMP positive opinion in January 2015 6 Based on approximately 25% of PV patients who fail Hydroxyurea and could qualify for Jakavi treatment. Source: Alvarez-Larrán, et al Blood 2012
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 44
Signifor® approved in US and EU for treatment of
patients with acromegaly
Acromegaly is associated with higher mortality rates and serious health complications
• Prevalence ~60 patients per million
• Sandostatin LAR®: USD 1.6bn (FY) +6% vs. PY1
Despite current SSAs2 treatments, 45% of patients3 with acromegaly are inadequately controlled and fail to achieve recommended levels of GH4 or normalized levels of IGF-15
Signifor®6 was approved in a new long acting release formulation in US and EU
1 Sandostatin LAR is indicated for acromegaly and functional gastroenteropancreatic neuroendocrine tumours (GEP NET) 2 Somatostatin Analogues (SSAs) 3 Carmichael JD, JCEM 2014;99(5):1825-1833 4 Growth hormone (GH) 5 Insulin-like growth factor-1 (IGF-1) 6 In the US, the long-acting release formulation of pasireotide for the treatment of acromegaly has been approved under the trade name Signifor® LAR
Novartis Acromegaly Franchise
Medically
naive
patients
Patients
inadequately
controlled on
current SSAs
US EU
6 6
6
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 45
Cosentyx™ (secukinumab) showed superiority to Stelara®
in head-to-head CLEAR study (Psoriasis)
CosentyxTM (formerly AIN457) showed superiority to Stelara® in the CLEAR study (PASI 90 at week 16)2
1st approved anti-IL17A (approved as 1st line systemic therapy in EU)
• Japan - first approval in Dec
• EU and US - approval in Jan
Cosentyx is highly differentiated in the market place
• Superior efficacy vs. Stelara® and Enbrel®3
• Sustainability of response
• Favorable safety profile
• Monthly maintenance regimen
Psoriasis sales and growth1
(in USD m)
2 209
2 862
3 459
4 149
4 960
5 896
0
1 000
2 000
3 000
4 000
5 000
6 000
2009 2010 2011 2012 2013 MATOct'14
Enbrel
Humira
Remicade
Stelara
Ciclosporin
Methotrexate
Acitretin
Etretinate
Note: Stelara® and Remicade® are registered trademarks of Janssen Biotech, Inc., Enbrel® is a registered trademark of Amgen Inc., Humira® is a registered trademark of AbbVie Ltd.
PASI90 = 90% reduction in Psoriasis Area Severity Index from baseline 1 Sales from US, Japan, Top-5 EU. Source: IMS PADDS Monthly, Oct ’14. Compound Annual Growth Rate (CAGR) ‘09-’14
2 Novartis, Data on file 3 Langley RG, Elewski BE, Lebwohl M, et al. NEJM 2014. Jul 9;371(4):326-38
®
®
®
®
+22% CAGR (09-14)
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 46
0
20
40
60
80
100
0 4 8 12 16 20 24 28 32 36 40 44 48 52
Weeks Secu 75 mg
Secu 150 mg
Placebo
Secu 300 mg
% R
esp
on
ders
(AC
R 2
0)
% R
esp
on
ders
(AS
AS
20)
Secu 10 mg/kg i.v. 150 mg s.c.
Placebo Secu 10 mg/kg i.v. 75 mg s.c.
Weeks
76.7%
71.3% 60.8%
28.7%
Primary
Endpoint
51.0%
54.0%
29.3%
15.3%
FUTURE 2 (PsA) - Rapid and Significantly Improved ACR20 Responses
MEASURE 1 (AS) - Sustained ASAS 20 Response Through Week 52
Note: Secu= Secukinumab; i.v. = intravenous; s.c. = sub-cutaneous
Cosentyx™: Novartis is working to be the 1st company
to launch an anti-IL17A with three indications in label
4 landmark PsA/AS PhIII studies presented at ACR 20141
• Efficacy in both anti-TNF-naive and anti-TNF-IR groups
• PsA: >50% ACR 20 responders at week 24
• AS: unprecedented sustained efficacy; at week 52, >75% of patients achieved ASAS 20, >60% achieved ASAS 40 (secondary endpoint)
Cosentyx™ will compete in three high growth segments2
• Psoriasis USD 6bn (+22%)2
• Psoriatic Arthritis (PsA) USD 3bn (+22%)2
• Ankylosing Spondylitis (AS) USD 2bn (+23%)2
60
0
50
40
20
0
4 24 8 12 16 20 1 2
30
10
3
PsA = Psoriatic Arthritis. AS = Ankylosing spondylitis. TNF = Tumor Necrosis factor. ACR20 = reduction by 20% in American
College of Rheumatology response criteria, ASAS 20/40 = 20%/40% improvement in the Assessment of Spondyloarthritis
International Society criterion 1 American College of Rheumatology (November 2014) 2 Sales MAT Oct. 2014 from US and Top-5 EU. Psoriasis includes Japan as well. Source: IMS PADDS Monthly, Oct ‘14.
CAGR (‘09-’14)
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 47
LCZ696: Additional clinical data; accelerated regulatory reviews
PARADIGM-HF cause of death data1
Submission in EU and US completed
EMA and Swissmedic granted Accelerated Review
New data shows LCZ696 has potential to reduce
the risk of clinical progression of heart failure1,2
Patients in LCZ696 group were less likely to2 :
• Require hospitalization for a cardiovascular reason (12%) or for any reason (12%)
• Require an emergency room visit for heart failure (34%)
• Require intensive care (13%)
p=0.008
p=0.034
p<0.001
Enalapril
LCZ696
All causes CV causes Pump
Failure
Sudden
Death
p<0.001
19.8 16.5
7.4 4.4
17.0 13.3
6.0 3.5
0
5
10
15
20
25
% o
f p
atie
nts
-16% -20% -20% -21%
1 Novartis Data on File. Presented at AHA by J. McMurray Nov. 17, 2014 2 Packer et al. Circulation 2014; epub ahead of print: DOI: 10.1161 / CIRCULATION AHA.114.013748
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 48
BKM120
LDE225
LDE225
LCZ696
LCZ696
QVA149/NVA237
US, EU & Japan submission in mBC ER+: combo with Fulvestrant, mTOR naive
FDA action in advanced basal cell carcinoma
CHMP opinion in advanced basal cell carcinoma
FDA action in chronic heart failure with reduced ejection fraction
CHMP opinion in chronic heart failure with reduced ejection fraction
FDA action in chronic obstructive pulmonary disease (COPD)
Currently expected Pharmaceuticals newsflow highlights
H1 2015
Cosentyx™
Cosentyx™
Jakavi®
Exjade®
CosentyxTM
Zykadia™
EU approval in psoriasis
FDA action in psoriasis
CHMP opinion in polycythemia vera
FDA action in new formulation film coated tablets
Regulatory filings in US and EU for ankylosing spondylitis and psoriatic arthritis
CHMP opinion in ALK+ NSCLC
H2 2015
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 49
Agenda
Group overview Joseph Jimenez
Chief Executive Officer
Financial review Harry Kirsch
Chief Financial Officer
Pharmaceuticals David Epstein
Division Head, Novartis Pharmaceuticals
Closing Joseph Jimenez
Chief Executive Officer
Q&A session Executive team
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 50
We are delivering against our priorities
Strong 2014 financial results
Strong innovation news adding to momentum
Progress on portfolio transformation and NBS
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 51
Our priorities in 2015 are expected to continue to
position us for future success
Build a
high-performing
organization
5
Complete
the portfolio
transformation
3
Strong financial
results and
discipline
1
Strengthen
innovation
2
Capture
cross-divisional
synergies
4
2015 pr ior i t ies
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 52
Agenda
Group overview Joseph Jimenez
Chief Executive Officer
Financial review Harry Kirsch
Chief Financial Officer
Pharmaceuticals David Epstein
Division Head, Novartis Pharmaceuticals
Closing Joseph Jimenez
Chief Executive Officer
Q&A session Executive team
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 53
Appendix
Cosentyx™ Ankylosing spondylitis
Cosentyx™ Psoriatic arthritis
Afinitor® TSC6 seizures
PKC412 ASM4
PKC412 AML2
BKM120 mBC ER+ AI resistant/mTOR naive
MEK162* NRAS mutant melanoma
Afinitor® Non-functioning GI and Lung NET3
Gilenya® CIDP13
Lucentis®
CNV and ME7
BYM338 sIBM5
Ilaris®
Hereditary periodic fevers
CTL019
Acute lymphoblastic leukemia
Tasigna® CML treatment free remission
MEK162* + LGX818 BRAF mutant melanoma
MEK162* LGSOC8
ACZ885 Sec. prev. cv events11
KAE609 Malaria
LCI699 Cushing’s disease
Afinitor® DLBCL12
BGS649 OHH17
BYM338 Hip fracture
CAD106 Alzheimer’s disease
BAF312 Multiple sclerosis
QGE031 Asthma
QAW039 Asthma
BCT197 COPD16
LIK066 Type II diabetes
LCZ696
Heart failure (PEF)18
QAX576 Allergic diseases
HSC835 Stem cell transplantation
BYL719 Solid tumors
BGJ398 Solid tumors
LJM716 Solid tumors
BKM120 Solid tumors
MEK162* Solid tumors
LEE011 Solid tumors
Lucentis® ROP15
Tekturna®
Heart failure9
Signifor® LAR10 Cushing’s disease
Planned filings 2015 to 2019
2017 2019 2015 2016
1 Familial chylomicronemia syndrome 2 Acute myeloid leukemia 3 Neuroendocrine tumors 4 Aggressive systemic mastocytosis
5 Sporadic inclusion body myositis 6 Tuberous sclerosis complex 7 Choroidal neovascularization (CNV) and macular edema (ME) secondary to conditions other than macular degeneration, diabetic macular edema, retinal vein occlusion and pathologic myopia
8 Low-grade serous ovarian cancer 9 Reduction of CV death/hospitalization in chronic heart failure patients 10 Long-acting release
11 Secondary prevention of cardiovascular events
12 Diffuse large B-cell lymphoma 13 Chronic inflammatory demyelinating polyradiculoneuropathy 14 Non-small cell lung cancer 15 Retinopathy of prematurity 16 Chronic obstructive pulmonary disease 17 Obese hypogonadotropic hypogonadism
18 Preserved ejection fraction
New molecule
New indication
New formulation
RLX030 Acute heart failure
Fovista® Wet AMD
FCR001 Renal transplantation
BKM120 mBC ER+ post Al and mTOR inhibitor
CTL019 DLBCL12
INC280 NSLCL14
2018
EGF816 Solid tumors
LCQ908 FCS1
KAF156 Malaria
BYM338 Sarcopenia
QAW039 Atopic dermatitis
LEE011 HR+, HER2(-) advanced breast
cancer (premenopausal women)
LEE011 HR+, HER2(-) advanced breast
cancer (postmenopausal women)
LGX818 Solid tumors
CJM112 Immune disorders
* MEK162 rights to be returned to Array BioPharma Inc. which is conditional on the closing of the portfolio transformation transaction with GSK
Zykadia™ ALK+advanced NSCLC14
(first line, treatment naive)
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 55
Key Definitions
This presentation contains several important words or phrases that we define as below:
ACR20: Reduction by 20% in American College of Rheumatology response criteria
ALK+ NSCLC: Anaplastic lymphoma kinase positive (ALK+) Non-small cell lung cancer
(NSCLC)
Approval: In Pharmaceuticals, Alcon and Vaccines in US and EU; each indication and
regulator combination counts as approval; excludes label updates, CHMP opinions
alone, and minor approvals
AS: Ankylosing spondylitis
ASAS20/40: 20% respectively 40% improvement in the Assessment of
Spondyloarthritis International Society criterion
CAGR: Compound Annual Growth Rate
CML: Chronic myelogenous leukemia
COPD: Chronic Obstructive Pulmonary Disease
DME: Diabetic Macular Edema
Emerging Growth Markets: All markets excluding the US, Canada, Western Europe,
Japan, Australia, and New Zealand
GH: Growth Hormone
Growth products: Growth products comprise products launched in 2009 or later, or
products with exclusivity until at least 2018 in key markets (EU, US, Japan)
Gx: Generic
HR+/HER2-: Hormone Receptor positive, Human Epidermal Growth Factor 2 negative
IGF-1: Insulin-like growth factor-1
In cc: In constant currencies
JCEM: Journal of Clinical Endocrinology & Metabolism
mCNV: Choroidal neovascularization (CNV) secondary to pathologic myopia (myopic
CNV)
MF: Myelofibrosis
MMR: Major Molecular Response
MR4.5: Molecular Response of ≥ 4.5-log reduction in BCR-ABL transcripts
NEJM: New England Journal of Medicines
NSCLC: Non Small Cell Lung Cancer
PASI90: 90% reduction in Psoriasis Area Severity Index from baseline
pNET: Pancreatic neuroendocrine tumors
PsA: Psoriatic Arthritis
PV: Polychytemia vera
RVO: Retinal Vein Occlusion
SSA: Somatostatin Analogue
TNF: Tumor Necrosis Factor
TSC SEGA: Tuberous sclerosis complex subependymal giant cell astrocytoma
wAMD – wet age-related macular degeneration
| Novartis Q4 and FY 2014 Results | January 27, 2015 | Novartis Investor Presentation 56