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Transcript of Novartis 2012
ANNUAL REPORT 2012
1We want to discover, develop andsuccessfully market innovativeproducts to prevent and curediseases, to ease suffering andto enhance the quality of life.
We also want to provide ashareholder return that reectsoutstanding performance andto adequately reward thosewho invest ideas and work inour company.
cONTENTs OUR missiON
GROUP REviEW Financial Highlights 2
News in 2012 3
Letter from Daniel vasella 5
interview with Joseph Jimenez 11
HEALTHcARE PORTFOLiO contents 17
Novartis institutes for Biomedical Research 33
vaccines and Diagnostics 53
consumer Health 59
cORPORATE REsPONsiBiLiTy contents 65
Expanding Access to Healthcare 67
Doing Business Responsibly 77
independent Assurance Report 85
cORPORATE GOvERNANcE contents 87
Our Board of Directors 96
Our management 110
cOmPENsATiON REPORT contents 121
compensation Report 122
NOvARTis GROUPFiNANciAL REPORT contents 147
Financial Highlights 2012 148
Key Financial Developments 149
Operating and Financial Review 150
share information 168
summary of Key Financial Data 188
Novartis Group consolidated Financial statements 190
Financial statements of Novartis AG 258
Annual Report Photography and Films 278
Key Dates 2013, contact information 280and Forward-Looking statements
KEY FIGURES(in USD millions, unless indicated otherwise)
Net sales 56 673 58 566
Operating income 11 511 10 998
Return on net sales (%) 20.3 18.8
Net income 9 618 9 245
Basic earnings per share 1 (USD) 3.93 3.83
Core operating income 2 15 160 15 909
Core return on net sales (%) 26.7 27.2
Core net income 2 12 811 13 490
Core earnings per share 1,2 (USD) 5.25 5.57
Core Research & Development 2 9 116 9 239
As a % of net sales 16.1 15.8
Number of associates (FTE) 3 127 724 123 686
Group free cash flow 11 383 12 503
Share price at year end (CHF) 57.45 53.70
ADS price at year end (USD) 63.30 57.17
Dividend 4 (CHF) 2.30 2.25
Payout ratio 5 65 66
2012 NET SALES BY REGION(% and in USD millions)
12012 average number of shares outstanding: 2 418.1 million (2011: 2 382.5 million).2Core results for operating income, net income, earnings per share (EPS) and R&D eliminate theimpact of acquisition-related factors and other significant exceptional items. These adjustmentsare explained in detail starting on page 182.
3Full-time equivalent positions at year end.
4Dividend payment for 2012: proposal to 2013 Annual General Meeting.5Payout ratio is calculated by converting into USD the proposed total gross dividend amount inCHF at the CHF-USD exchange rate of December 31, 2012 based on an estimated number ofshares outstanding on dividend payment date and dividing it by the USD consolidated netincome attributable to shareholders of Novartis AG based on the Novartis Groups 2012consolidated financial statements.
NET SALES, OPERATING INCOME, NET INCOME, CORE OPERATINGINCOME AND CORE NET INCOME(Index: 2008 = 100%)
Net sales Core operating incomeOperating income Core net incomeNet income
United States 33 18 592
Europe 35 19 708
Asia/Africa/Australasia 23 12 936
Canada and Latin America 9 5 437
Total 56 673
2008 2009 2010 2011 2012
2 Novart is Group aNNual report 2012
Novartis provides healthcare solutions that address the evolving needs of patients and societies worldwide. Our portfolio focuseson broad areas of healthcare: pharmaceuticals, eye care, generics, vaccines, consumer-based OTc and animal health.
32 | Group re v iew 17 | HE ALTHcARE PORTFOL iO 65 | cORPORATE REsPONs iB iL i T y 87 | cORPORATE GOvERNANcE 121 | cOmPENsAT iON REPORT 147 | F iNANc iAL REPORTFinancial Highlights | News in 2012
News iN 2012
PERFORmANcE Net sales were UsD 56.7 billion, down 3% (unchanged in constant currencies, or cc)from the previous year. Operating income grew 5% (+8% cc) to UsD 11.5 billion. coreoperating income declined 5% (2% cc) to UsD 15.2 billion. core operating incomemargin decreased by 0.5 percentage points to 26.7% of net sales.
PRODUcTs Recently launched products accounted for UsD 16.3 billion or 29% of Group net sales,up from 25% in 2011. continuing to rejuvenate the portfolio, Pharmaceuticals achieved11 major regulatory approvals for innovative medicines and new indications in theUnited states and the European Union. Key approvals included Anitor in the Unitedstates and the European Union in advanced breast cancer, Jakavi in the EuropeanUnion in myelobrosis, and Seebri Breezhaler in the European Union for patients withchronic obstructive pulmonary disease (cOPD). Alcon also received FDA approval forDailies Total1, the industrys rst water-gradient silicone hydrogel contact lens. in vaccinesand Diagnostics, Flucelvax, the rst cell-culture vaccine in the United states to help pro-tect against seasonal inuenza, received FDA approval, and Bexsero secured a positivecHmP opinion for use preventing meningococcal serogroup B infections in individuals2 months of age and older.
PiPELiNE Novartis has a leading new product pipeline with more than 200 projects in clinicaldevelopment, including 138 in the Pharmaceuticals Division. in pipeline highlights, therst ve studies in the QvA149 Phase iii iGNiTE clinical trial program all met their primaryendpoints and showed that QvA149 signicantly improved lung function compared withother cOPD therapies. Results from a Phase iii study showed that investigational com-pound RLX030 reduces the mortality rate in patients with acute heart failure. Alcon hasleveraged the capabilities of the Novartis institutes for Biomedical Research to gain accessto a range of technologies and has prioritized glaucoma and macular degeneration indrug discovery efforts. sandoz initiated a Phase iii clinical trial for epoetin alfa in theUnited states, and continued to progress the follicular lymphoma Phase iii clinical trialfor biosimilar monoclonal antibody rituximab. The vaccines and Diagnostics pipelinecontinues to focus on meningococcal disease and inuenza.
REsEARcH AND DEvELOPmENT Reecting our commitment to innovation, we invested 21% of Pharmaceuticals net salesin R&D, focusing on the areas of greatest patient need and scientic promise.
PORTFOLiO We continued to strengthen our broad, diversied healthcare portfolio with the acquisitionof Fougera Pharmaceuticals inc. by our sandoz Division, making it the number onegeneric dermatology medicines company in the United states and globally.
cORPORATE REsPONsiBiLiTy Engaging with society to improve access to healthcare is integral to the way Novartis oper-ates. in 2012, our contributions and programs in this area were valued at UsD 2 billion,providing medicine to more than 100 million patients, and health education, infrastructuredevelopment and other programs to another 7.2 million people worldwide.
DiviDEND We propose to deliver our 16th consecutive dividend increase, with a 2% raise proposedfor 2012 to cHF 2.30 per share (2011: cHF 2.25 per share), a dividend yield of 4.0%.
52 | Group re v iew 17 | HE ALTHcARE PORTFOL iO 65 | cORPORATE REsPONs iB iL i T y 87 | cORPORATE GOvERNANcE 121 | cOmPENsAT iON REPORT 147 | F iNANc iAL REPORTLet ter from Daniel vasella
Daniel vasella, m.D.
the economic and debt crisis has cast ashadow over europe and the united statesfor more than four years, and it signicantlyaffected 2012, as well. Despite major con-certed efforts, the end of this troublingperiod is not yet in sight.
Even the regions and markets that have sofar escaped the crisis are now in danger ofbeing affected by its socioeconomic sideeffects. Protectionist market interventions,monetary expansion and over-regulation all signs of reactive politics are increasingand can lead to a deepening of structuraldecits. Persistent weak growth is likely,despite low interest rates and monetary ex-pansion. High levels of public debt make theproblemworse inmany countries, and thereis no certainty as to whether pension fundsand social welfare institutions will be able tomeet their promises in the medium term.
despite this ominousbackdrop,Novartis onceagain posted strong results in 2012. This isall the more remarkable given that we were
forced to deal with increased price pressure,the patent expiration for our successful heartdrug Diovan, and persistent turbulence onnancial and currency markets. moreover,quality problems at sandoz and consumerHealth led to production downtime, whichalso affected results.
Despite these far-reaching events, Novartiswas able to provide 1.2 billion patients world-wide with medical care in 2012 exceedingthe record-setting level of previous years thanks to recently launched products and thefurther expansion in fast-growing markets.
The Groups net sales reached UsD 56.7 bil-lion (3%, unchanged in constant curren-cies), while net income increased by 4% (7%in constant currencies) to UsD 9.6 billion.
The pharmaceuticals Division (UsD 32.2 bil-lion, 2% in constant currencies) rejuvenatedits product portfolio with the help of recentlylaunched products such as leukemia drugTasigna and ophthalmic medicine Lucentis,which helped balance the Diovan patent loss.moreover, groundbreaking therapies suchas Gilenya and Afinitor which in 2012posted revenue growth in constant curren-cies of 147% and 85%, respectively areexpected to generate sustainable growth inthe future.