Novartis AG (NVS)

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Novartis AG (NVS)

Q4 2011 Earnings Call

January 25, 2012 8:00 am ET

Executives

Jonathan Symonds - Chief Financial Officer

Jeffrey George - Division Head of Generics

Kevin J. Buehler - President, Chief Executive Officer, and Chairman

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

Analysts

Matthew Weston - Crédit Suisse AG, Research Division

Naresh Chouhan - Liberum Capital Limited, Research Division

Amit Roy - Nomura Securities Co. Ltd., Research Division

Gbola Amusa - UBS Investment Bank, Research Division

Michael Leuchten - Barclays Capital, Research Division

Tim Anderson - Sanford C. Bernstein & Co., LLC., Research Division

Peter Verdult - Morgan Stanley, Research Division

Graham Parry - BofA Merrill Lynch, Research Division

Alexandra Hauber - JP Morgan Chase & Co, Research Division

Andrew S. Baum - Citigroup Inc, Research Division

Presentation

Operator

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 Q4 Full Year Results 2011 Conference Call and Live Webcast. Please know that for the duration of the presentation, all participants will be in listen-only mode and 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. Joseph Jimenez. Please go ahead, sir.

Joseph Jimenez

Thank you. I'd like to welcome you all to our fourth quarter and full year results webcast. Joining me today from Novartis are Jon Symonds, the CFO and then we have a number of the division heads here, David Epstein, Head of Pharma; Kevin Buehler, Head of the Alcon division; Jeff George, Head of Sandoz; Andrin Oswald, Head of Vaccines and Diagnostics; George Gunn, Head of Animal Health; and Naomi Kelman, Head of OTC.

So before we start, I'd like Susanne Schaffert to read the Safe Harbor statement. Susanne?

Susanne Schaffert

The information presented in this webcast 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. Okay, starting on Slide #4. We had a strong full year in 2011 with our sales on a constant currency up 12% versus a year ago. We were able to continue strong core operating income leverage of 16% and we had record free cash flow of $12.5 billion. I think we made good progress on our innovation pipeline with 19 approvals across the divisions and 11 first to files.

So on Slide #5, you can see that in the fourth quarter, our sales were up 5% versus a year ago. We delivered very good operating income leverage on the core results, but you can also see the impact in the fourth quarter of the charges that we have preannounced and Jon Symonds will come up and give you more detail in a minute on those charges.

Slide 6 shows what I'd call the benefit of Novartis' diversified portfolio. So we had the strongest growth this year from the Alcon group, up 7% on a pro forma basis and also Sandoz, which was up 7%. Pharma had what I consider a very strong year with sales up 4% while absorbing 4 points of generic erosion on Femara in the U.S. and on Diovan in parts of Europe.

In Vaccines and Diagnostics, the business was up 22%, excluding H1N1 behind the launch of Menveo and we're continuing to execute well against our 3 strategic priorities of extending our leading innovation, accelerating growth and driving productivity and I want to just touch on some of the progress that we have made.

In 2011, we proved once again that we're leading the industry in terms of approvals, 15 major approvals in the Pharma division, including Gilenya approval in Europe and in Japan. So we expect to repeat our successful launch from the U.S. in those regions. Also, Afinitor approval in both U.S. and Europe for pancreatic neuroendocrine tumors and Lucentis received approval for 2 new indications, DME and retinal vein occlusion, which is very important as we start to face some competition in wet AMD.

Alcon and Sandoz also contributed to this innovation with 4 approvals in Alcon. An example of this is strengthening of our glaucoma franchise between with the BAK-free formulation of TRAVATAN and DuoTrav. Also we received approval to Dailies Total 1, which is our first silicone hydrogel daily disposable lens. And importantly, Sandoz had 11 first to files in the U.S. We also accelerated our growth in emerging markets by leveraging some of our cross-divisional capabilities in these important markets. So I'd like to highlight a couple of numbers. China, the business grew 24% across Novartis, which was a significant pickup versus the previous year and also Russia, up 17%. Brazil was a little bit weaker because of generic entry of Diovan and a couple of other brands, but we have very strong plans in place for Brazil in 2012.

Now the second priority is turning that innovation into sales and profit growth that hits the P&L. And on Slide 11, you can see that we are successfully transforming this portfolio. On the right-hand side, sales that -- from newly launched products reached $14 billion, which was about 25% of our total group sales and it's up 38% versus 2010. And on the left-hand side, you can see the launch trajectory of Gilenya, just one of many launches. I think because we have a large number of launches, we continue to learn and get better and better with each consecutive specialty launch that we have. Alcon delivered very solid performance on top of the integration work that was a significant drain in 2011. So the growth on Alcon was led by the Pharmaceuticals and the Surgical sector. They also had very strong growth across many regions, Asia up 17% versus a year ago. Kevin's going to come up and talk a little bit later about -- more about Alcon.

Sandoz continued to strengthen its position as a global leader in generics, #1 in biosimilars and this business was up 37% versus a year ago; #1 in injectables as enoxaparin crossed $1 billion in the U.S. and #1 in ophthalmics. We took the Alcon generics business, turned it over to Sandoz and that business is up 24% versus a year ago. Jeff will come up and talk more about really how broad-based the growth in Sandoz is.

Vaccines and Diagnostics grew at the top of the industry, up about 22%, excluding H1N1. Our Menveo vaccine crossed $140 million of global sales and we filed the new indication for infants in 2011. Also the next-generation vaccine, Bexsero, for meningitis B was filed in Europe and we expect regulatory approval in 2012.

Now our Consumer Health business grew 3% as both Animal Health and over-the-counter drugs drew -- drove their key brands. So in fact, you can see that the OTC business grew in emerging markets about twice what the market was growing, so over 20%. And also on the Animal Health business, our Animal Health group defended their business in the face of a launch by Eli Lilly against parasiticides in the U.S. and they defended their territory very significantly.

In 2011, we also made great progress in productivity. We achieved savings of USD $2.6 billion and this was about 30% more than we did a year ago. So in addition to the group-wide savings, each division drives productivity at the country level. We're also making good progress on our global manufacturing network and we're taking the necessary steps to reduce some of our excess capacity. So in 2011, we announced the exit or the partial exit of 10 sites. So in total, since we began the program, 14 sites.

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