诺华制药(NVS) - 2023 Q2 - Quarterly Report

Group and Divisional Operating Performance Group Performance Novartis Group achieved robust Q2 and H1 2023 growth, driven by volume, with double-digit increases in net sales and operating income (cc), as it strategically transforms into a "pure-play" innovative medicines business with the planned Sandoz spin-off Group Key Financial Data (Q2 & H1 2023) | Indicator | Q2 2023 (Million USD) | Q2 YoY Change (cc) | H1 2023 (Million USD) | H1 YoY Change (cc) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | 13,622 | +9% | 26,575 | +8% | | Operating Income | 2,920 | +50% | 5,776 | +28% | | Net Income | 2,317 | +54% | 4,611 | +32% | | Core Operating Income | 4,668 | +17% | 9,081 | +16% | | Core Net Income | 3,811 | +19% | 7,425 | +19% | | Core EPS (USD) | 1.83 | +25% | 3.54 | +25% | - The company is strategically transforming into a "pure-play" innovative medicines business, focusing on five core therapeutic areas: Cardiovascular, Immunology, Neuroscience, Solid Tumors, and Hematology[6] - The planned spin-off of Sandoz is set for early Q4 2023, subject to shareholder vote at an Extraordinary General Meeting on September 15[7][8][10] - Q2 net sales growth was primarily driven by 14 percentage points of volume growth, partially offset by price erosion (-2 percentage points) and generic competition (-3 percentage points)[14] Innovative Medicines Segment The Innovative Medicines segment, a core growth engine, achieved $11.2 billion in Q2 2023 net sales (+9% cc), driven by strong performance from key products like Entresto, Kesimpta, Pluvicto, and Kisqali, alongside significant growth in operating income and margins Innovative Medicines Segment Key Financial Data (Q2 & H1 2023) | Indicator | Q2 2023 (Million USD) | Q2 YoY Change (cc) | H1 2023 (Million USD) | H1 YoY Change (cc) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | 11,243 | +9% | 21,813 | +8% | | Operating Income | 2,999 | +52% | 5,674 | +30% | | Core Operating Income | 4,387 | +20% | 8,475 | +19% | - Q2 sales growth was primarily driven by products such as Entresto (+37% cc), Kesimpta (+105% cc), Pluvicto ($240 million), and Kisqali (+66% cc), partially offset by generic competition for Gilenya[34] - Regionally, US market sales grew by 14%, Europe by 2% (cc), and Emerging Growth Markets by 17% (cc), with China sales increasing by 16% (cc)[35] Q2 2023 Sales and Growth by Key Therapeutic Area | Therapeutic Area | Q2 2023 Sales (Million USD) | YoY Change (cc) | | :--- | :--- | :--- | | Cardiovascular | 1,594 | +41% | | Solid Tumors | 1,656 | +54% | | Immunology | 1,950 | +4% | | Neuroscience | 961 | +28% | | Hematology | 1,782 | +10% | - Established Brands like Lucentis and Gilenya saw sales decline by 20% (cc) and 52% (cc) respectively, due to generic competition[71][72] Sandoz Segment The Sandoz segment achieved $2.4 billion in Q2 2023 sales (+8% cc), driven by volume growth in Europe and biosimilars, but operating income significantly declined by 41% (-27% cc) due to higher legal settlement expenses and spin-off related standalone costs Sandoz Segment Key Financial Data (Q2 & H1 2023) | Indicator | Q2 2023 (Million USD) | Q2 YoY Change (cc) | H1 2023 (Million USD) | H1 YoY Change (cc) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | 2,379 | +8% | 4,762 | +8% | | Operating Income | 212 | -27% | 531 | -19% | | Core Operating Income | 429 | +6% | 933 | +5% | - Q2 sales growth was primarily driven by the European market (+13% cc), while the US market experienced an 8% sales decline[75] - Global Biosimilars sales grew by 13% (cc), reaching $531 million[75] - The decline in operating income was primarily attributed to higher legal settlement expenses, increased selling and marketing expenses to drive sales growth, and standalone costs related to the spin-off[76] Cash Flow and Group Balance Sheet Cash Flow In H1 2023, the Group's net cash inflow from operating activities was $6.5 billion, a 21% increase driven by higher net income, while Q2 operating cash flow was $3.6 billion, a slight decrease year-over-year, with H1 free cash flow reaching $6.0 billion, up 23% Key Cash Flow Data (H1 2023 vs H1 2022) | Indicator (Million USD) | H1 2023 | H1 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Net cash flows from operating activities | 6,533 | 5,404 | +21% | | Net cash flows from/(used in) investing activities | 9,568 | (2,263) | N/A | | Net cash flows used in financing activities | (12,839) | (11,830) | -8.5% | | Free cash flow | 5,995 | 4,890 | +23% | - Net cash inflow from operating activities in Q2 was $3.6 billion, a decrease from $3.8 billion in the prior year, primarily due to the timing of income tax payments, increased provision payments, and unfavorable working capital movements[86] Balance Sheet As of June 30, 2023, the Group's total assets decreased to $111.0 billion from year-end 2022, with total equity reducing to $51.9 billion due to dividend payments and share repurchases, and net debt significantly increasing from $7.2 billion to $15.4 billion Key Balance Sheet Items (As of June 30, 2023) | Item (Million USD) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total assets | 110,979 | 117,453 | | Total liabilities | 59,048 | 58,030 | | Total equity | 51,931 | 59,423 | | Net debt | 15,374 | 7,245 | - The decrease in total assets was primarily due to amortization and impairment of intangible assets, as well as a reduction in cash and marketable securities[100][102] - The reduction in total equity was mainly driven by $7.3 billion in dividend payments and $5.9 billion in treasury share purchases, partially offset by $4.6 billion in net income[109] Innovation Review R&D Pipeline and Progress Novartis focuses on high-value drug development with approximately 130 clinical projects, securing recent approvals for Cosentyx and Entresto, with key late-stage pipeline assets like Kisqali and Pluvicto, and strengthened R&D through acquisitions like Chinook and DTx Pharma - The company's R&D portfolio focuses on approximately 130 clinical development projects, prioritizing medicines with transformative potential[113] - Recent key approvals include Cosentyx for hidradenitis suppurativa in the EU and Entresto for pediatric heart failure in the EU[114] - Key late-stage pipeline projects Kisqali (for early breast cancer) and Pluvicto (for pre-taxane metastatic castration-resistant prostate cancer) are planned for regulatory submissions in 2023[118] - Through business development, the company reached agreements to acquire Chinook Therapeutics (for rare kidney diseases) and DTx Pharma (for neuroscience) to enhance R&D capabilities[119] - In Sandoz's biosimilar pipeline, the marketing authorization applications for denosumab have been accepted by the FDA and EMA[120] Condensed Interim Consolidated Financial Statements Consolidated Income Statements This section presents the unaudited detailed consolidated income statements for Q2 and H1 2023, outlining revenue and expense items from net sales to net income Consolidated Income Statement Summary (H1 2023) | Item (Million USD) | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Net Sales | 26,575 | 25,312 | | Gross Profit | 18,872 | 18,292 | | Operating Income | 5,776 | 5,080 | | Income before taxes | 5,509 | 4,711 | | Net Income | 4,611 | 3,914 | Notes to Condensed Interim Consolidated Financial Statements, Including Update on Legal Proceedings The notes detail financial statement preparation, accounting policies, major transactions like DTx Pharma and Chinook acquisitions, the Xiidra divestment, legal proceedings updates for Sandoz's generic pricing and Exforge antitrust cases, and segment reporting for Innovative Medicines and Sandoz - Major transactions include agreements to acquire DTx Pharma ($500 million upfront, up to $500 million in milestones) and Chinook Therapeutics ($3.2 billion upfront, up to $300 million in milestones)[142][145] - Legal proceedings update: Sandoz's Deferred Prosecution Agreement (DPA) in the US generic pricing investigation concluded in March 2023, and the Exforge antitrust class action was settled for $245 million, paid in Q1 2023[171][177] - Pending divestment: An agreement was reached with Bausch + Lomb to divest the ophthalmic product Xiidra and related assets for a total consideration of $1.75 billion in cash and up to $750 million in milestones, with related assets reclassified as held for sale[199][200] - Segment reporting structure adjustment: Effective January 1, 2023, Sandoz's biotechnology manufacturing services and the Coartem brand were transferred to the Innovative Medicines segment, with historical data restated[185] Supplementary Information Core Results (Non-IFRS) This section provides a reconciliation from IFRS to core results, which exclude items like intangible asset amortization, impairments, acquisition/divestment related items, restructuring costs, and significant legal matters, to better reflect underlying business performance, with Q2 2023 Group core operating income at $4.7 billion and core net income at $3.8 billion - Core performance measures exclude items management believes impact comparability, such as intangible asset amortization, significant impairments, restructuring costs, legal settlements, and acquisition-related items[236] Reconciliation of Group IFRS Operating Income to Core Operating Income (Q2 2023) | Item (Million USD) | Amount | | :--- | :--- | | IFRS Operating Income | 2,920 | | Add: Amortization of intangible assets | 971 | | Add: Impairments | 440 | | Less: Acquisition/divestment related items | (58) | | Add: Other items (restructuring, legal, etc.) | 395 | | Core Operating Income | 4,668 | Free Cash Flow (Non-IFRS) This section defines and reconciles free cash flow, which, effective January 1, 2023, is revised to "net cash flows from operating activities less purchases of property, plant and equipment," resulting in Q2 2023 free cash flow of $3.3 billion and H1 of $6.0 billion under the new definition - Effective January 1, 2023, the definition of free cash flow was revised to net cash flows from operating activities less purchases of property, plant and equipment, with prior year data restated for comparability[243][244] Free Cash Flow Calculation | Indicator (Million USD) | Q2 2023 | H1 2023 | | :--- | :--- | :--- | | Net cash flows from operating activities | 3,576 | 6,533 | | Less: Purchases of property, plant and equipment | (301) | (538) | | Free cash flow | 3,275 | 5,995 | Additional Information This section provides additional data on net debt, share information, and the impact of currency fluctuations, noting that as of June 30, 2023, Group net debt was $15.4 billion, and currency fluctuations had a -2 percentage point negative impact on Q2 Group sales - As of June 30, 2023, Group net debt was $15.4 billion, a significant increase from $7.2 billion at year-end 2022[281][282] - Currency fluctuations had a 2 percentage point negative impact on Q2 Group net sales growth (reported growth of 7%, constant currency growth of 9%)[287]