Novartis AG (NVS)

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Novartis AG (NVS)

Q4 2010 Earnings Call

January 27, 2011 8:00 am ET

Executives

Joseph Jimenez - CEO

Jon Symonds - CFO

David Epstein - Head of Pharma

Jeff George - Head of Sandoz

George Gunn - Head of Consumer Health

Andrin Oswald - Head of Vaccines and Diagnostics

Trevor Mundel - Head of Exploratory Clinical Development

Susanne Schaffert - Global Head of IR

Analysts

Tim Race – Deutsche Bank

Graham Parry - Bank of America/Merrill Lynch

Andrew Baum - Morgan Stanley

Matthew Weston - Credit Suisse

Kevin Wilson - Citigroup

Tim Anderson - Sanford Bernstein

Carl Hancock - Hellvia

Fabian Wenner - UBS

Alexandra Hauber - JPMorgan

Florent Cespedes Exane - BNP Paribas

Alistair Campbell - Berenberg Bank

David Evans - UT Credit

Presentation

Operator

Good morning or good afternoon, depending where you are attending from. I am Stephanie, the conf-call operator for this conference. Welcome to the Novartis Q4 and Full-Year 2010 Results conference call and live webcast. Please note that for the duration of the presentation, all participants will be in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions).

At this time, I would like to turn the conference over to Mr. Joe Jimenez. Please go ahead, sir.

Joe Jimenez

And I would like to welcome you all to our 2010 results conference call. Joining me today on the Novartis Center Jon Symonds, our CFO; David Epstein, Head of Pharma; Jeff George, Head of Sandoz, George Gunn, Head of Consumer Health and Andrin Oswald, Head of Vaccines and Diagnostics.

And before we get started, I’d like to ask Susanne Schaffert to read the Safe Harbor statement.

Susanne Schaffert

The information presented in this conference call contains forward-looking statements that involve known and unknown risks, uncertainties and other facts, this may cause actual results to be materially different from any future results, performance or achievements, expressed or implied by such statements. Please refer to the company's Form 20-F on file with the Securities and Exchange Commission for a description of some of these factors.

Joe Jimenez

Thanks Susanne. Okay starting on slide number 4, you can see that 2010 was really an outstanding year for Novartis. Our sales were up 14% in constant currencies. And this was driven by above market growth in all of our divisions. We delivered great leverage with core operating income growing 22%, and this led to net income up 18%, and EPS growth to 16% for the year.

I think though that the most important achievements for the year are around innovation, we have multiple key approvals including Gilenia in the U.S. Last week we received the positive opinion from the CHMP on Gilenia in the EU and also approval in Switzerland and Australia.

In the EU also in the fourth quarter we filed our meningitis B vaccine Visceral [ph] which will build our meningitis portfolio into a blockbuster franchise. And then finally the board proposed a dividend of 2.2 Swiss francs for 2010.

So slide 5 you can see a summary of the financial results. We crossed $50 billion for the first time in our history and Jon’s going to go into more detail regarding both the full year and the financials for the fourth quarter.

But on slide 6 you can see that our divisions grew at above market rates and it was all divisions. This is what we feel the best about 2010. Looking just at Sandoz, up 15% and vaccines and diagnostics growing at 25% behind the strong flu sales but also the meningitis swatch.

Our above market performance on the next slide was driven, I believe by, the focus that we have on our three strategic priorities and that’s extending our lead in innovation accelerating growth and driving productivity.

So just starting with innovation on slide 8, we had a very strong year in innovation. You’ll hear from David around the Gilenia launch in a minute but Oncology also had a tremendous year with Tasigna first line approval and Afinitor approval to treat benign brain tumors associated with tubersclerosis. Sandoz also with a launch of generic Lovenox, further generated leadership in differentiated generics.

Vaccine and diagnostics submitted the important infant indication from Anvil in the US and our meningitis vaccine Bexsero in Europe. So with the 2010 numbers in on slide 9 you can see that once again we outpaced the industry with new molecules in both the US and Europe in terms of total approval since 2007.

Now our second priority is on slide 10 and that is accelerating growth. We have shown the slide before but it keeps increasing, our new products have contributed 21% of our sales which is up 16% and it went up from 16% last year. This is going to critical as we face the beginning of the Diovan patent expiration.

On slide 11 we were also able to leverage our synergies across our four growth platforms to deliver incremental sales last year. One example was that we built a cross divisional field force in Venezuela to capture synergies on our pediatric line. So that is across Pharma, Sandoz and OTC, we were able to build one field force going up against physicians selling all products. We also rolled key account management with some of our key customers around the world.

In 2010, on slide number 12 you can see that we also expanded significantly in emerging markets. So in December we announced a $500 million commitment in Russia to build a Greenfield manufacturing site in St. Petersburg and also to collaborate with some of the local regions in Russia around health awareness. We also built a strategic partnership in Brazil to improve public health. So now all children under the age of two in Brazil are vaccinated by our Meningitis C vaccine.

Also in the area of growth each of our businesses is focusing on driving their emerging markets growth and we grew 12% as a total company. This is in our top six markets; we delivered close to $5 billion in sales. So, this is not a small piece of business. We continue to drive and I expect that that growth rate in those emerging markets will increase in 2011.

Around productivity on slide 14, we were able to grow our core operating income margin 190 basis points. All parts of the businesses have extensive productivity programs that are driving this result. For example, we are creating manufacturing centers of excellence.

We drove significant procurement savings this year. We are now up to pushing about 40% of our addressable spend through e-sourcing and this drove a $1 billion of savings in 2010.

We also realigned our field force and Sandoz, Germany, as an organization and took a charge in the fourth quarter to improve the cost structure of these businesses going forward.

On slide 15, our above market performance reflects the focus that we have on these five platforms. David will talk Pharma and then I will come back and just give a brief summary about the other four. But before we do that, I would like Jon to review in detail the fourth quarter and the full-year financial performance, Jon.

Jon Symonds

Thank you, Joe and good morning or good afternoon, everyone. As usual, there is quite a lot to get through. I will spend some time on the full-year first before turning to the quarter.

I think the full-year gives a much clearer picture of what we are trying to achieve. Although there are some important elements in the fourth quarter that are important in their own right, but also relevant for 2011.

Read the rest of this transcript for free on seekingalpha.com