Novartis AG (NVS)

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Novartis AG (NVS)

Q2 2011 Earnings Call

July 19, 2011 8:00 am ET


Jonathan Symonds - Chief Financial Officer

Jeffrey George - Division Head of Generics

Susanne Schaffert - Head of Oncology - Novartis Pharma Germany

Joseph Jimenez - Chief Executive Officer and Member of Executive Committee

David Epstein - Head of Global Pharmaceuticals Division

Andrin Oswald - Division Head of Vaccines & Diagnostics


Mark Dainty - Citigroup Inc

Florent Cespedes - Exane BNP Paribas

Tim Anderson - Sanford C. Bernstein & Co., Inc.

Graham Parry - BofA Merrill Lynch

Alexandra Hauber - JP Morgan Chase & Co

Gbola Amusa - UBS Investment Bank

Jo Walton - Crédit Suisse AG

Michael Leuchten - Barclays Capital

Andrew Weiss - Bank Vontobel AG

Mark Beards - Goldman Sachs Group Inc.

Naresh Chouhan - Liberum Capital Limited

Michael Leacock - RBS Research

Tim Race - Deutsche Bank AG



Good morning or good afternoon, depending where you're attending from. I'm Stephanie, the Chorus Call operator for this conference. Welcome to the Novartis Q2 Half Year Results 2011 Conference Call and Live Webcast. [Operator Instructions] The conference is being recorded. [Operator Instructions] This call must not be recorded for publication or broadcast.

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

Joseph Jimenez

Thank you. Good afternoon, and good morning to those of you on the line. I'd like to welcome everybody to the second quarter 2011 conference call. Now joining on me -- joining with me on the Novartis end are Jon Symonds, CFO; David Epstein, Head of Pharma; Kevin Buehler is here, Head of Alcon business; Jeff George, Head of Sandoz; Andrin Oswald, Head of Vaccines and Diagnostics; and we also have Trevor Mundel, Head of Pharmaceutical Development.

Before we start, I'd like Susanne to read the Safe Harbor statement, please.

Susanne Schaffert

The information presented in this conference call contains forward-looking statements that involve known and unknown risks, uncertainties and other factors. These 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.

Joseph Jimenez

Thanks, Susanne. Okay, starting on Slide #4. We had a strong quarter. In the second quarter, our sales were up 19% versus year ago. We're also able to drive strong operating leverage with our core operating income up 29% in U.S. dollars and core EPS up 23% in U.S. dollars. We had a great cash flow quarter, and we also made great progress in our innovation this quarter with 4 major approvals, which we'll talk about a little bit later.

On Slide 5, you can see an overview of the financials, and Jon will speak to these, but core EPS of 1.48, which is up 23% versus a year ago.

Slide 6 shows the -- what I think is the benefit of the Novartis diversified portfolio. We had very strong contribution this quarter from Sandoz, which was up 16% in constant currency and Alcon up 6%. Pharma also had a good performance. It was up 2%, but this includes absorbing 4 points of generic erosion on FEMARA in the U.S. and Diovan in Europe, particularly Spain, where we have lost exclusivity.

Now Vaccines and Diagnostics business was down, excluding H1N1, due to the timing of some bulk product shipments. But as you know, Q2 is historically a low sales quarter for vaccines. So I look at vaccines more on the half year at the first half of the year. And they were up 6% in constant currency behind the Menveo launch.

Now on Slide 7, we're continuing to execute well against our 3 priorities of innovation, growth and productivity. And let me just touch on each of those starting with innovation on Slide 8. We made great progress with some key approvals. The 4 key approvals in the quarter are listed here. And if you add those to first quarter, we've had in total 7 approvals in the first half of the year. Also, in the second quarter, we had 2 very important filings: INC424, our new JAK2 inhibitor for myelofibrosis was filed in Europe, and Menveo in U.S. to expand the label for use in infants and toddlers between 2 and 12 months of age.

On Slide 9, our focus on innovation has really been critical in terms of translating that innovation into sales and profit growth. So on this slide you can see that recently launched products accounted for $3.8 billion in sales out of the roughly $15 billion for the quarter. That's up 46% versus year ago, and Dave is going to talk more about some of these launches and how we're driving them to move that portfolio.

On Slide 10, we saw some strong performance in our top 6 emerging markets, led by Consumer Health and Alcon, both of those divisions grew 20% plus this quarter in those markets. I also want to point out China's performance. So we had great performance in the second quarter on China, bringing the half year to plus 20% for the entire company. We're also making good progress in Russia, particularly with establishing a manufacturing footprint. So we recently broke ground on a new state-of-the-art manufacturing facility in St. Petersburg. We see Russia as a long-term play, and we'll have local manufacturing there shortly.

On Slide 11, since the Alcon merger closed on April 8, our teams have been working very closely to integrate CIBA Vision into Alcon and Alcon into Novartis. We've made great progress over the past few months, and the new Alcon division with those new businesses in it, became operational July 1. We've got synergy plans and tracking mechanisms in place, and we'll provide you with an update on synergies and progress against those later in the year.

Slide 12 shows you an overview of the Alcon business, the new Alcon business, which is structured into 3 franchises: Surgical was up 6%, with strong growth in advance intraocular lenses; Pharmaceuticals was up 8%, despite a weaker allergy season than a year ago; and vision care, including CIBA Vision, was up about 2%.

Now on Slide 13, you can see this -- the growth that we're seeing on Sandoz, which is not just this year, but it's year-over-year-over-year. And this is driven by strong performance in the U.S. with enoxaparin sales, which were substantial in the quarter. We also, though, had strong double-digit growth in Western Europe and emerging markets. And also you can see biosimilars and oncology injectables were up both over 30%. So this is a broad-based growth that's across geographies, and it is across product categories for Sandoz.

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