EX-99 3 a130717-99_2.htm 99.2 INTERIM FINANCIAL REPORT 99.2 Interim Financial Report

 
 

 
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Novartis International AG
Novartis Global Communications
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http://www.novartis.com


CONDENSED FINANCIAL REPORT – SUPPLEMENTARY DATA

Novartis Q2 and H1 2013 Condensed Financial Report – Supplementary Data

INDEX
Page
GROUP AND DIVISIONAL OPERATING PERFORMANCE Q2 AND H1 2013
 
Group
2
Pharmaceuticals
5
Alcon
10
Sandoz
13
Vaccines and Diagnostics
15
Consumer Health
16
CASH FLOW AND GROUP BALANCE SHEET
18
INNOVATION REVIEW
20
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Condensed consolidated income statements
27
Condensed consolidated statements of comprehensive income
29
Condensed consolidated balance sheets
30
Condensed consolidated changes in equity
31
Condensed consolidated cash flow statements
32
Notes to condensed consolidated financial statements, including update on legal proceedings
34
SUPPLEMENTARY INFORMATION
42
CORE RESULTS
 
Reconciliation from IFRS to core results
44
Group
46
Pharmaceuticals
48
Alcon
50
Sandoz
52
Vaccines and Diagnostics
54
Consumer Health
56
Corporate
58
ADDITIONAL INFORMATION
 
Condensed consolidated changes in net debt / Share information
59
Free cash flow
60
Net sales of top 20 Pharmaceuticals products
61
Pharmaceuticals sales by business franchise
63
Net sales by region
65
Currency translation rates/Income from associated companies
67
Restatement information
68
DISCLAIMER
70


 
 
 

 

GROUP AND DIVISIONAL OPERATING PERFORMANCE

Key figures
        Q2 2013       Q2 2012 1  
% change
      H1 2013       H1 2012 1  
% change
 
     
USD m
   
USD m
   
USD
   
cc
   
USD m
   
USD m
   
USD
   
cc
 
Net sales
      14 488       14 303       1       3       28 504       28 038       2       4  
Divisional operating income
      3 159       3 323       -5       0       6 215       6 225       0       4  
Corporate income & expense, net
      -189       -215       12       12       -349       -381       8       8  
Group operating income
      2 970       3 108       -4       1       5 866       5 844       0       5  
    As % of net sales
      20.5       21.7                       20.6       20.8                  
Income from associated companies
      174       176       -1       -1       285       304       -6       -6  
Interest expense
      -175       -183       4       5       -350       -347       -1       -1  
Other financial income and expense
      5       34       -85       -94       12       -7    
nm
   
nm
 
Taxes
      -426       -460       7       2       -843       -850       1       -5  
Net income
      2 548       2 675       -5       0       4 970       4 944       1       6  
EPS (USD)
      1.03       1.09       -6       -1       2.01       2.03       -1       5  
Free cash flow2
      1 785       2 311       -23               3 083       4 367       -29          
Core2
                                                                 
Operating income
      3 755       3 831       -2       2       7 469       7 438       0       4  
    As % of net sales
      25.9       26.8                       26.2       26.5                  
Net income
      3 227       3 298       -2       2       6 475       6 333       2       6  
EPS (USD)
      1.30       1.35       -4       1       2.62       2.60       1       5  
nm = not meaningful

Second quarter

Group net sales
Group net sales increased 1% (+3% cc) to USD 14.5 billion in the second quarter, with all divisions contributing to growth in constant currencies. Currency had a negative impact of 2 percentage points mainly from the weakening yen.

Excluding the impact of patent expiries, underlying sales grew 8% in constant currencies. This performance was fueled by growth products such as Gilenya, Afinitor, Tasigna, Galvus, Xolair, the Q Family3 and Jakavi, which together contributed USD 4.5 billion or 31% of Group net sales, up 13% over the prior-year period. Generics impacted sales by approximately USD 0.8 billion, mainly due to Diovan and Zometa. Sales continued to benefit from the delayed entry of generic competition for Diovan monotherapy in the US.

Corporate income and expense, net
Corporate income and expense, which includes the cost of Group management and central services, amounted to a net expense of USD 189 million. This was lower than the net expense of USD 215 million in the prior-year quarter due to better contributions from the Venture Fund. Adjustments to arrive at core Corporate income and expense amounted to USD 55 million compared to USD 49 million in the prior-year period, principally related to impairments of financial assets and other exceptional charges.
 

1 Restated as explained on pages 34 and 68.
2 Core results, constant currencies, and free cash flow are non-IFRS measures. An explanation of these non-IFRS measures and reconciliation tables can be found beginning on page 42.
3 The Q Family includes Arcapta Neohaler/Onbrez Breezhaler and Seebri Breezhaler.
 
2
 
 

 

Group operating income
In the second quarter, adjustments made to Group operating income to arrive at core operating income amounted to USD 785 million (2012: USD 723 million). These adjustments included the amortization of intangible assets of USD 738 million (2012: USD 711 million) and an exceptional net expense of USD 47 million (2012: USD 12 million).

Exceptional expenses included USD 89 million of impairment charges, principally in Alcon and Corporate, USD 82 million of acquisition-related integration costs in the Alcon Division and USD 50 million of other exceptional expense net. These expenses were partly offset by a net gain of USD 174 million from other exceptional items, principally a divestment gain in the Pharmaceuticals Division.

Excluding these items, Group core operating income was USD 3.8 billion (-2%, 2% cc). Underlying core operating income – excluding the impact of generic competition – grew 18% in constant currencies. Core operating income margin in constant currencies decreased by 0.3 percentage points; currency had a negative impact of 0.6 percentage points, resulting in a net decrease of 0.9 percentage points to 25.9% of net sales.

Income from associated companies
Income from associated companies, which comprises mainly the Novartis share of the estimated net result of Roche AG, remained stable at USD 174 million compared to USD 176 million in the year-ago period.

Core income from associated companies increased to USD 221 million from USD 204 million in the 2012 period. The increase was primarily due to a higher estimated core income contribution from Roche.

Interest expense and other financial income/expense
Interest expense decreased to USD 175 million in the second quarter of 2013 from USD 183 million in the 2012 quarter. Other financial income and expense amounted to a net income of USD 5 million (2012: net income of USD 34 million).

Taxes
The tax rate (taxes as percentage of pre-tax income) in the second quarter decreased to 14.3% from 14.7% in the same period last year.

The core tax rate (taxes as percentage of pre-tax income) slightly increased to 15.2% from 15.1% in the 2012 period.

Net income and EPS
Group net income decreased 5% (0% cc) to USD 2.5 billion and EPS was down 6% (-1% cc) to USD 1.03.

Group core net income of USD 3.2 billion was 2% (+2% cc) below the previous year. Core EPS declined 4% (+1% cc) to USD 1.30, largely in line with core net income.

First half

Group net sales
Group net sales increased to USD 28.5 billion in the first half, up 2% (+4% cc) over the prior-year period. Currency had a negative impact of 2 percentage points, mainly due to the weakening yen against the US dollar.

Excluding the impact of patent expiries, underlying sales grew 8% in constant currencies. Growth products contributed USD 8.7 billion or 31% of Group net sales, up 14% over the prior-year period. Generics impacted sales by approximately USD 1.3 billion, mainly due to Diovan and Zometa. US sales continued to benefit from the delayed entry of generic competition for Diovan monotherapy.

Corporate income and expense, net
Corporate income and expense amounted to a net expense of USD 349 million in the first half, compared to USD 381 million in the prior-year period, principally due to adjustments of provisions in Corporate and higher cost allocations to the Divisions. Net adjustments of USD 3 million to arrive at core Corporate income and expense included the reversal of provisions and an impairment charge for financial assets.
 

3
 
 

 
Group operating income
In the first half of 2013, the adjustments made to Group operating income to arrive at core operating income amounted to a net expense of USD 1.6 billion (2012: USD 1.6 billion). These adjustments included the amortization of intangible assets (USD 1.5 billion compared to USD 1.4 billion in 2012) and exceptional items (net expense of USD 143 million compared to USD 169 million in 2012).

Exceptional expenses in the first half of 2013 included a USD 79 million increase in legal provisions in the Sandoz Division, USD 53 million of impairment and other charges for the restructuring of the Consumer Health facility at Lincoln, Nebraska, USD 135 million of integration costs in the Alcon Division, other impairment charges of USD 95 million and a net USD 89 million for various other exceptional expenses. These expenses were partly offset by USD 308 million of exceptional gains, principally USD 187 million of exceptional divestment gains in the Pharmaceuticals Division and a USD 75 million release of Corporate provisions. The adjustments in the prior-year period were mainly driven by the USD 149 million restructuring charge related to the US Pharmaceuticals business.

Excluding these items, Group core operating income increased to USD 7.5 billion (0%, +4% cc). Core operating income margin in constant currencies increased by 0.1 percentage points; currency had a negative impact of 0.4 percentage points, resulting in a net decrease of 0.3 percentage points to 26.2% of net sales. Excluding the impact of generic competition, core operating income grew 17% in constant currencies.

Income from associated companies
Income from associated companies decreased to USD 285 million from USD 304 million in the prior-year period. This decrease was primarily due to an additional expense resulting from adjusting the estimated Novartis share of Roche’s 2012 net income to the actual amount, partially offset by the estimated income contribution from Roche for 2013.

The core income from associated companies increased to USD 452 million from USD 379 million in 2012 due to a higher estimated core income contribution from Roche for 2013.

Interest expense and other financial income/expense
The interest expense increased slightly to USD 350 million in the first half of 2013 from USD 347 million in 2012. Other financial income and expense amounted to a net income of USD 12 million compared to a net expense of USD 7 million in 2012.

Taxes
The tax rate (taxes as percentage of pre-tax income) decreased slightly to 14.5% in the first half of 2013 from 14.7% in the year-ago period.

The core tax rate (taxes as a percentage of core pre-tax income) was 15.1% in the first half of 2013, in line with the first half of 2012.

Net income and EPS
Group net income was USD 5.0 billion (+1%, +6% cc) for the first half, with constant currency growth in line with operating income growth as lower income from associated companies was compensated by lower net financial expenses due to hedging gains. EPS was down 1% (+5% cc) to USD 2.01. Core net income of USD 6.5 billion was ahead of the previous year by 2% (+6% cc). Core EPS was USD 2.62 (+1%, +5% cc), largely following the increase in core net income.

4
 
 

 

Pharmaceuticals
        Q2 2013       Q2 2012    
% change
      H1 2013       H1 2012    
% change
 
     
USD m
   
USD m
   
USD
   
cc
   
USD m
   
USD m
   
USD
   
cc
 
Net sales
      8 121       8 255       -2       1       15 998       16 094       -1       2  
Operating income
      2 557       2 741       -7       -3       5 096       5 143       -1       3  
  As % of net sales
      31.5       33.2                       31.9       32.0                  
Core operating income
      2 472       2 746       -10       -6       5 045       5 335       -5       -2  
  As % of net sales
      30.4       33.3                       31.5       33.1                  

Second quarter

Net sales
Pharmaceuticals net sales reached USD 8.1 billion (-2%, +1% cc) in the second quarter, driven by strong volume growth (+10 percentage points), offset by the impact of generic competition mainly for Diovan and Zometa (USD 0.7 billion, -9 percentage points). Pricing had a negligible impact. Growth products (defined as products launched since 2008 or products with exclusivity until at least 2017 in key markets) generated USD 3.0 billion of net sales, growing 26% in constant currencies over the same period last year. These products – which include Gilenya, Afinitor, Tasigna, Galvus, Lucentis, Xolair, the Q Family and Jakavi – contributed 37% of division net sales, compared to 30% in the same period last year.

Regionally, Europe (USD 2.7 billion, +4% cc) saw a strong performance from growth products, which offset generic competition (mainly for Diovan and Zometa), as well as negative price effects. US sales (USD 2.6 billion, -5% cc) declined due to generic competition to combination product Diovan HCT and to Zometa, partly offset by the continued strong performance of Gilenya, Afinitor and Tasigna. The US continued to benefit from the delayed entry of a generic form of Diovan monotherapy. Japan’s performance (USD 0.8 billion, +2% cc) improved versus prior year due to continued growth from launch products. Sales in Latin America and Canada (USD 0.8 billion, +8% cc) continued to grow strongly. Emerging Growth Markets (USD 2.0 billion, +8% cc) – which include all markets except the US, Canada, Western Europe, Australia, New Zealand and Japan – benefited from particularly strong growth in China.

Oncology (USD 2.8 billion, +5% cc) delivered solid growth despite the entry of a generic form of Glivec in certain markets and loss of exclusivity for Zometa (USD 160 million, -50% cc). Excluding Zometa, Oncology grew 13% (cc), mainly driven by Afinitor (USD 308 million, +77% cc), Tasigna (USD 315 million, +38% cc), Sandostatin (USD 404 million, +12% cc) and Exjade (USD 234 million, +9% cc). The Primary Care franchise performance (USD 1.9 billion, -6% cc) was impacted by the expected sales decline in Diovan (USD 0.9 billion, -22% cc) due to loss of exclusivity in the EU, US and Canada. Excluding Diovan, Primary Care grew +20% (cc), underpinned by the continued strong uptake of Galvus (USD 289 million, +37% cc) and Exforge (USD 377 million, +11% cc). In Specialty Care, the Neuroscience franchise (USD 0.9 billion, +22% cc) saw strong growth from Gilenya (USD 468 million, +66% cc) following successful launches in Europe, the US and other markets. The Ophthalmics franchise (USD 0.6 billion, -5% cc) was impacted as expected by new competition for Lucentis (USD 576 million, -3% cc) in certain markets.

Operating income
Operating income declined 7% (-3% cc) to USD 2.6 billion. Adjustments to arrive at core operating income amounted to USD 85 million, consisting mainly of USD 146 million of exceptional divestment gains (mainly Synacthen®) partly offset by USD 69 million for the amortization of intangible assets. The prior-year adjustments for the same period amounted to USD 5 million.

Core operating income declined 10% (-6% cc) to USD 2.5 billion. Core operating income margin in constant currencies declined 2.3 percentage points; currency had a negative impact of 0.6 percentage points, resulting in a net decrease of 2.9 percentage points to 30.4% of net sales. Gross margin declined by 0.2 percentage points (cc) due to increased royalties, mainly for Gilenya. R&D expenses as a percentage of net sales increased by 1.7 percentage points (cc) to support incremental investments in key projects in Specialty Care and Oncology. Marketing & Sales and General & Administration expenses remained unchanged in constant currencies as continuing productivity efforts offset additional investments in new product launches. Other Income and Expense, net declined by 0.4 percentage points in constant currencies.

5
 
 

 
 
First half

Net sales
Pharmaceuticals delivered net sales of USD 16.0 billion (-1%, +2% cc) in the first half, driven by double-digit volume growth (+10 percentage points), offset by the impact of generic competition (USD 1.2 billion, -8 percentage points). Pricing had a negligible impact.

Europe (USD 5.5 billion, +6% cc) benefited from the continued strong performance of growth products. The US (USD 5.1 billion, -5% cc) was impacted by generic competition to Diovan HCT. Japan’s performance (USD 1.7 billion, 3% cc) improved versus prior year due to new launches. Latin America and Canada (USD 1.5 billion, +3% cc) maintained solid growth rates despite generic entries. Emerging Growth Markets (USD 3.8 billion, +9% cc) were led by double-digit growth from China.

Operating income
Operating income was USD 5.1 billion (-1%, +3% cc) for the first half. Included in operating income was USD 187 million of divestment gains, whereas the first half of 2012 included USD 149 million of restructuring charges related to the US General Medicine business and USD 137 million of provision reductions mainly related to aliskiren inventory.

Core operating income declined 5% (-2% cc) to USD 5.0 billion. Core operating income margin in constant currencies declined by 1.2 percentage points; currency had a negative impact of 0.4 percentage points, resulting in a net decrease of 1.6 percentage points to 31.5% of net sales. Gross margin declined by 0.3 percentage points (cc) due to increased royalties, mainly for Gilenya. R&D expenses as a percentage of net sales increased by 1.4 percentage points (cc) to support key projects. Marketing & Sales and General & Administration expenses improved margin by 0.5 percentage points (cc). Other Income and Expense, net remained unchanged from previous year (cc).

Pharmaceuticals product review

All comments below focus on second quarter movements.

PRIMARY CARE
        Q2 2013       Q2 2012    
% change
      H1.2013       H1 2012    
% change
 
     
USD m
   
USD m
   
USD
   
cc
   
USD m
   
USD m
   
USD
   
cc
 
Hypertension medicines
                                                         
Diovan
      928       1 266       -27       -22       1 846       2 456       -25       -21  
Exforge
      377       352       7       11       725       655       11       15  
  Subtotal Valsartan Group
      1 305       1 618       -19       -15       2 571       3 111       -17       -13  
Tekturna/Rasilez
      86       98       -12       -10       154       227       -32       -31  
Subtotal Hypertension
      1 391       1 716       -19       -15       2 725       3 338       -18       -15  
Galvus
      289       224       29       37       556       425       31       38  
Xolair
      148       127       17       20       289       239       21       24  
Arcapta Neohaler/Onbrez Breezhaler
      47       33       42       44       90       62       45       46  
Seebri Breezhaler
      12       0    
nm
   
nm
      18       0    
nm
   
nm
 
Total strategic franchise products
      1 887       2 100       -10       -6       3 678       4 064       -9       -5  
Established medicines
      321       411       -22       -17       663       784       -15       -11  
Total
      2 208       2 511       -12       -7       4 341       4 848       -10       -6  
nm = not meaningful

Diovan Group (USD 928 million, -22% cc), consisting of Diovan monotherapy and the combination product Co-Diovan/Diovan HCT, saw worldwide sales decline due to the loss of exclusivity in the EU, US, Canada and other markets. Continued growth was seen in China and select markets in Latin America, Asia Pacific, the Middle East and Africa. In September 2012, Diovan lost exclusivity in the US. With respect to Diovan monotherapy (62% of Diovan Group sales in the US in 2012), no generic competitor has yet been approved by the FDA. Generic competition could come at any time. Diovan HCT, however, is already facing competition from multiple generic competitors in the US.

Exforge Group (USD 377 million, +11% cc), which includes Exforge and Exforge HCT, continued to grow at a solid double-digit rate, fuelled by robust growth in Europe, Asia Pacific and Middle East, as well as ongoing Exforge HCT launches in Asia and Latin America. Exforge is now available for patients in more than 100 countries. Exforge HCT, which consists of Exforge with a diuretic in a single pill, is now available in over 60 countries.
 
6
 
 

 
 
Galvus Group (USD 289 million, +37% cc), which includes Galvus (vildagliptin), an oral treatment for type 2 diabetes, and Eucreas, a single-pill combination of vildagliptin and metformin, continued to deliver strong growth across markets including Europe, Japan, Latin America and Asia Pacific. Performance was driven by a continued focus on patients whose diabetes remains uncontrolled on metformin, as well as an expansion of usage in new patient segments based on new indications. Galvus and Eucreas are currently approved in more than 110 countries.

Xolair (USD 148 million, +20% cc), currently approved in more than 90 countries as a treatment for persistent severe allergic asthma, continued to grow strongly in Europe, Japan, Canada and Latin America. Novartis co-promotes Xolair with Genentech/Roche in the US and shares a portion of the operating income, but does not book US sales.

Tekturna/Rasilez (USD 86 million, -10% cc) sales declined following label updates in the EU, US and Japan in April 2012. Novartis voluntarily ceased the marketing of Valturna, a single-pill combination containing aliskiren (the active ingredient in Tekturna/Rasilez) and valsartan, in the US as of July 2012.

Arcapta Neohaler/Onbrez Breezhaler (USD 47 million, +44% cc) continued to grow strongly worldwide as a once-daily long-acting beta2-agonist for the maintenance bronchodilator treatment of airflow obstruction in adult patients with chronic obstructive pulmonary disease. Indacaterol, the active ingredient in Arcapta Neohaler/Onbrez Breezhaler, is now approved in approximately 100 countries.

ONCOLOGY
        Q2 2013       Q2 2012    
% change
      H1 2013       H1 2012    
% change
 
     
USD m
   
USD m
   
USD
   
cc
   
USD m
   
USD m
   
USD
   
cc
 
Gleevec/Glivec
      1 190       1 194       0       1       2 333       2 324       0       2  
Tasigna
      315       237       33       38       599       446       34       38  
Subtotal Bcr-Abl franchise
      1 505       1 431       5       7       2 932       2 770       6       7  
Sandostatin
      404       370       9       12       772       740       4       6  
Afinitor/Votubia
      308       175       76       77       611       318       92       94  
Exjade
      234       219       7       9       437       435       0       2  
Zometa
      160       336       -52       -50       402       663       -39       -38  
Femara
      97       115       -16       -10       194       222       -13       -8  
Jakavi
      33       2    
nm
   
nm
      68       4    
nm
   
nm
 
Other
      77       82       -6       -6       155       161       -4       -4  
Total
      2 818       2 730       3       5       5 571       5 313       5       7  
nm = not meaningful

Our Bcr-Abl franchise, consisting of Gleevec/Glivec and Tasigna, reached USD 1.5 billion in sales (+7% cc) in the second quarter, driven by the growth of Tasigna.

Gleevec/Glivec (USD 1.2 billion, +1% cc) grew slightly, despite generic competition in Brazil, Russia, Canada, Turkey and Mexico and increased competition in the Philadelphia chromosome-positive (Ph+) chronic myeloid leukemia (CML) indication. In addition to its indication as a targeted therapy for Ph+ CML, Gleevec/Glivec is also indicated as a treatment for adult patients with metastatic and/or unresectable KIT+ gastrointestinal stromal tumors (GIST) and as an adjuvant treatment for certain adult patients following resection of KIT+ GIST. Following approval by the FDA in January, the EMA approved Gleevec/Glivec in July for pediatric patients with newly-diagnosed Ph+ acute lymphoblastic leukemia in combination with chemotherapy.

Tasigna (USD 315 million, +38% cc) grew rapidly as a more effective, targeted therapy than Gleevec/Glivec for adult patients with Ph+ CML. Tasigna market share continues to rise in markets around the world in both the first-line and second-line settings.

Sandostatin (USD 404 million, +12% cc), a somatostatin analogue used to treat patients with acromegaly, as well as patients with symptoms of carcinoid syndrome associated with neuroendocrine tumors, continued to benefit from the increasing use of Sandostatin LAR in key markets. A new presentation of Sandostatin LAR, which includes an enhanced diluent, safety needle and vial adapter, has been approved in 34 countries, with additional filings underway. Sandostatin LAR is also approved in 41 countries for the delay of disease progression in patients with advanced neuroendocrine tumors of the midgut or unknown primary tumor location.

7
 
 

 
 
Afinitor/Votubia (USD 308 million, +77% cc), an oral inhibitor of the mTOR pathway, continued its strong growth in the second quarter following additional regulatory approvals and launches in HR+/HER2- advanced breast cancer, subependymal giant cell astrocytoma associated with tuberous sclerosis complex (TSC) and renal angiomyolipoma associated with TSC. Afinitor is also approved for advanced renal cell carcinoma following vascular endothelial growth factor-targeted therapy and for the treatment of advanced pancreatic neuroendocrine tumors. Everolimus, the active ingredient in Afinitor/Votubia, is available under the trade names Zortress/Certican for use in other non-oncology indications and is exclusively licensed to Abbott and sublicensed to Boston Scientific for use in drug-eluting stents.

Exjade (USD 234 million, +9% cc), a once-daily oral therapy for chronic iron overload approved in more than 100 countries, saw sales increase due to strong performance in the US and Europe. Exjade is also approved for use in patients with non-transfusion-dependent thalassemia in 50 countries, with additional regulatory filings underway.

Zometa (USD 160 million, -50% cc), used in the oncology setting to reduce or delay skeletal-related events in patients with bone metastases from solid tumors and multiple myeloma, declined as anticipated due to the loss of exclusivity and consequential generic competition.

Jakavi (USD 33 million) grew as an oral inhibitor of the JAK 1 and JAK 2 tyrosine kinases. It is approved in the EU, Canada and other countries for the treatment of disease-related splenomegaly or symptoms in adult patients with primary myelofibrosis (also known as chronic idiopathic myelofibrosis), post-polycythemia vera myelofibrosis or post-essential thrombocythemia myelofibrosis. Jakavi (ruxolitinib) is currently approved in more than 45 countries, with additional regulatory filings underway. Novartis licensed ruxolitinib from Incyte Corporation for development and commercialization outside the US.

SPECIALTY CARE

Neuroscience
        Q2 2013       Q2 2012    
% change
      H1 2013       H1 2012    
% change
 
     
USD m
   
USD m
   
USD
   
cc
   
USD m
   
USD m
   
USD
   
cc
 
Gilenya
      468       283       65       66       889       530       68       68  
Exelon/Exelon Patch
      263       258       2       3       529       529       0       1  
Comtan/Stalevo
      97       137       -29       -26       197       292       -33       -30  
Extavia
      42       38       11       6       83       75       11       9  
Other (including Fanapt)
      17       19       -11       -4       36       35       3       4  
Total strategic franchise products
      887       735       21       22       1 734       1 461       19       20  
Established medicines
      108       126       -14       -11       220       247       -11       -7  
Total
      995       861       16       17       1 954       1 708       14       16  

Gilenya (USD 468 million, +66% cc) continued to show rapid growth as the first once-daily oral therapy for relapsing remitting and/or relapsing forms of multiple sclerosis (MS) in adult patients, supported by recent analyses of Phase III data showing that it significantly and consistently reduces the rate of brain volume loss versus a comparator. Gilenya is now approved in 75 countries, and it is estimated that it has been used to treat more than 71,000 patients in clinical trials and the post-marketing setting. Total patient exposure is now more than 87,000 patient years. With the approval of new oral treatments in the US and their anticipated approvals in Europe, we expect the size of the oral market to continue to increase throughout 2013.

Exelon/Exelon Patch (USD 263 million, +3% cc) combined sales grew in the second quarter. Exelon Patch, the transdermal form of the medicine, grew 13% (cc) and generated 93% of total Exelon sales in the quarter. Exelon Patch is approved for the treatment of mild-to-moderate Alzheimer’s disease dementia (AD) in more than 85 countries, including more than 20 countries where it is also approved for Parkinson's disease dementia. In the US, the launch of a high-dose patch in mild to moderate AD contributed to increased growth. In Europe, Exelon Patch, launched in Germany, UK, Netherlands, Sweden, and Finland, is beginning to face competition from generic rivastigmine patches 5 cm2 and 10 cm2.
 
8
 
 

 
 
Ophthalmics
        Q2 2013       Q2 2012    
% change
      H1 2013       H1 2012    
% change
 
     
USD m
   
USD m
   
USD
   
cc
   
USD m
   
USD m
   
USD
   
cc
 
Lucentis
      576       604       -5       -3       1 172       1 171       0       1  
Other
      16       26       -38       -33       33       48       -31       -27  
Total
      592       630       -6       -5       1 205       1 219       -1       0  

Lucentis (USD 576 million, -3% cc) continued to see strong double-digit volume growth in the second quarter, driven by launches in new indications with high unmet need (specifically, visual impairment due to diabetic macular edema and visual impairment due to macular edema secondary to retinal vein occlusion). Pricing had a negative impact on sales in the quarter, mainly due to one-time reductions required to secure reimbursement for new indications. Together with competitive pressure in certain markets, particularly Japan and Australia, this resulted in slightly lower sales than in the previous-year quarter. In addition to the two indications mentioned above, Lucentis is also licensed for wet age-related macular degeneration and – following EU approval in July – visual impairment due to choroidal neovascularization secondary to pathologic myopia. Lucentis is an anti-VEGF therapy specifically designed for the eye, minimizing systemic exposure, and has a well-established safety profile supported by extensive clinical studies and real-world experience. Genentech/Roche holds the rights to Lucentis in the US.

Integrated Hospital Care
        Q2 2013       Q2 2012    
% change
      H1 2013       H1 2012    
% change
 
     
USD m
   
USD m
   
USD
   
cc
   
USD m
   
USD m
   
USD
   
cc
 
Neoral/Sandimmun
      194       209       -7       -2       376       407       -8       -3  
Myfortic
      170       134       27       31       319       267       19       23  
Zortress/Certican
      62       52       19       22       120       98       22       25  
Ilaris
      27       20       35       44       51       35       46       48  
Other
      107       99       8       9       209       197       6       7  
Total strategic franchise products
      560       514       9       13       1 075       1 004       7       10  
Everolimus stent drug
      81       81       0       0       161       167       -4       -3  
Established medicines
      226       294       -23       -23       466       579       -20       -19  
Total
      867       889       -2       0       1 702       1 750       -3       -1  

Zortress/Certican (USD 62 million, +22% cc), available in more than 90 countries to prevent organ rejection in adult heart and kidney transplant patients, continued to generate strong growth. It is also approved for liver transplant patients in the EU, US and other countries worldwide. Everolimus, the active ingredient in Zortress/Certican, is marketed for other indications under the trade names Afinitor/Votubia. Everolimus is exclusively licensed to Abbott and sublicensed to Boston Scientific for use in drug-eluting stents.

Ilaris (USD 27 million, +44% cc) continued to grow strongly as a treatment for adults and children suffering from cryopyrin-associated periodic syndrome (CAPS), for which it is approved in more than 60 countries.

Critical Care
        Q2 2013       Q2 2012    
% change
      H1 2013       H1 2012    
% change
 
     
USD m
   
USD m
   
USD
   
cc
   
USD m
   
USD m
   
USD
   
cc
 
TOBI
      107       76       41       39       190       152       25       25  
Total
      107       76       41       39       190       152       25       25  

TOBI (USD 107 million, +39% cc) sales, including both TOBI nebulizer solution and TOBI Podhaler dry powder formulations of the antibiotic tobramycin for the management of cystic fibrosis patients with Pseudomonas aeruginosa bacteria in the lungs, showed solid growth in the second quarter. TOBI Podhaler contributed 26% of total sales.
 
9
 
 

 

Alcon
        Q2 2013       Q2 2012    
% change
      H1 2013       H1 2012    
% change
 
     
USD m
   
USD m
   
USD
   
cc
   
USD m
   
USD m
   
USD
   
cc
 
Net sales
      2 736       2 648       3       6       5 302       5 189       2       4  
Operating income
      397       419       -5       5       809       782       3       14  
  As % of net sales
      14.5       15.8                       15.3       15.1                  
Core operating income
      1 025       974       5       10       1 969       1 876       5       9  
  As % of net sales
      37.5       36.8                       37.1       36.2                  

Second quarter

Net sales
Alcon achieved net sales of USD 2.7 billion (+3%, +6% cc) in the second quarter, led by strong growth in the Surgical franchise.

Performance in the Surgical franchise (+5%, +8% cc) was driven by the Cataract segment, which experienced a slight procedural market rebound and market share gains in major markets such as the US, EU and Japan. Vision Care (+2%, +4% cc) grew as a result of solid sales in contact lenses, offset by soft growth in contact lens care. Ophthalmic Pharmaceuticals (+2%, +4% cc) was impacted negatively by generic prostaglandin competition and positively by the timing of the otic season in the US.

Regionally, sales growth was led by a strong performance across all franchises in Asia (+16%, +16% cc), and by a strong ocular allergy season and intraocular lens (IOL) market share gains in Japan (-10%, +11% cc). Latin America sales (+1%, +7% cc) grew due to strong Acrysof IOL performance. Sales growth was modest in Europe, the Middle East and Africa (+3%, +2% cc) and in North America (+3%, +3% cc). Emerging markets continued to show strong performance (+8, +10% cc) driven by the Cataract segment and Ophthalmic Pharmaceuticals.

Operating income
Operating income was USD 397 million (-5%, +5% cc), impacted by restructuring costs and the impairment of intangible assets. Adjustments to arrive at core operating income amounted to USD 628 million, which included USD 494 million for the amortization of intangible assets, USD 37 million for the impairment of intangible assets, USD 82 million for restructuring and integration costs, and USD 15 million for other net costs.

Alcon increased core operating income to USD 1.0 billion (+5%, +10% cc), delivering another quarter of core operating leverage. Core operating income margin in constant currencies expanded by 1.4 percentage points; currency had a negative impact of 0.7 percentage points, resulting in a net increase of 0.7 percentage points to 37.5% of net sales.

Gross margin decreased 1.1 percentage points to 74.0% of net sales impacted by product mix. Marketing & Sales expenses improved by 1.1 percentage points (cc) driven by productivity gains. General & Administration expenses decreased 0.2 percentage points (cc) as a result of decreased legal fees. R&D expenses decreased 1.1 percentage points (cc) from the 2012 period, driven by the phasing of pharmaceutical clinical programs.

First half

Net sales
Alcon net sales were up 2% (+4% cc) to USD 5.3 billion in the first half. Surgical franchise sales grew 2% (+5% cc), impacted by slower cataract procedure market growth in the first quarter. Vision Care (+2%, +3% cc) benefited from solid sales in contact lenses, balanced by soft growth in contact lens care. Ophthalmic Pharmaceuticals (+2%, +4% cc) was impacted negatively by generic prostaglandin competition.

10
 
 

 
 
Operating income
Operating income of USD 809 million (+3%, +14% cc) was driven by sales growth and productivity gains, partially offset by restructuring costs and the impairment of intangible assets. Adjustments to arrive at core operating income amounted to USD 1.2 billion, consisting of USD 974 million for the amortization of intangible assets, USD 37 million for the impairment of intangible assets, USD 135 million of restructuring and integration costs and USD 26 million of other net costs, offset by an exceptional gain due to a reduction of a contingent consideration obligation related to a recent acquisition of USD 12 million.

Alcon increased core operating income to USD 2.0 billion (+5%, +9% cc), delivering strong operating leverage in the first half. Core operating income margin in constant currencies increased by 1.7 percentage points; currency had a negative impact of 0.8 percentage points, resulting in a net increase of 0.9 percentage points to 37.1% of net sales.

Alcon product review

All comments below focus on second quarter movements.

Surgical
        Q2 2013       Q2 2012    
% change
      H1 2013       H1 2012    
% change
 
     
USD m
   
USD m
   
USD
   
cc
   
USD m
   
USD m
   
USD
   
cc
 
Cataract products
      788       757       4       7       1 498       1 470       2       4  
          IOLs - Cataract
      346       335       3       7       661       654       1       4  
Vitreoretinal products
      148       140       6       11       285       281       1       5  
Refractive/Other
      73       60       22       22       138       124       11       13  
Total
      1 009       957       5       8       1 921       1 875       2       5  

Global Surgical sales in the second quarter grew to USD 1.0 billion (+5%, +8% cc), driven by growth in cataract products and increased usage of disposables for the LenSx and Constellation platforms. Following a soft first quarter, cataract products sales grew as a result of accelerated procedural market growth and market share gains. Sales of IOLs (+3%, +7% cc) and advanced technology IOLs (+8%, +11% cc) grew ahead of the market.

Ophthalmic Pharmaceuticals
        Q2 2013       Q2 2012    
% change
      H1 2013       H1 2012    
% change
 
     
USD m
   
USD m
   
USD
   
cc
   
USD m
   
USD m
   
USD
   
cc
 
Glaucoma
      320       335       -4       -2       629       641       -2       1  
Allergy/Otic/Nasal
      270       243       11       13       560       507       10       14  
Infection/Inflammation
      264       267       -1       -1       509       517       -2       -1  
Dry Eye/Other
      230       216       6       8       437       425       3       4  
Total
      1 084       1 061       2       4       2 135       2 090       2       4  

Global sales of Ophthalmic Pharmaceuticals products totaled USD 1.1 billion (+2%, +4% cc) in the second quarter. Despite a positive response to the US launch of Simbrinza, US generic prostaglandin competition impacted Glaucoma performance. Non-US markets (-2%, +2% cc) showed growth in DuoTrav and Azarga offset by softness in Azopt.

Allergy/Otic/Nasal sales were impacted by the timing of otic distributor buying and a strong Japan allergy season, offset by a weaker, later US allergy season. In the Infection/Inflammation segment, continued growth in the Nevanac franchise was offset by a temporary shipping delay in the US for Durezol. Dry Eye continued to show strong global growth in the Systane product family (+31%, +32% cc) with continued underlying demand and the timing of distributor buying.

The launch of Jetrea, a first in class treatment for vitreomacular traction and macular hole, continued to progress according to plan with the May submission of the AMNOG early benefit assessment in Germany and the June provisional recommendation by the UK’s National Institute for Health and Care Excellence (NICE) for reimbursement within the National Health Service. Along with the UK and Germany, Jetrea is now available in Sweden, Denmark, Finland and Norway.

11
 
 

 


Vision Care
        Q2 2013       Q2 2012    
% change
      H1 2013       H1 2012    
% change
 
     
USD m
   
USD m
   
USD
   
cc
   
USD m
   
USD m
   
USD
   
cc
 
Contact lenses
      462       446       4       5       901       870       4       5  
Contact lens care
      181       184       -2       1       345       354       -3       -1  
Total
      643       630       2       4       1 246       1 224       2       3  

Vision Care global product sales were USD 643 million (+2%, +4% cc). Contact lens performance was driven by continued strong growth of Air Optix (+7%, +10% cc) globally. Regionally, the Dailies brand continued to grow in Europe and the US, driven by the market response to the Dailies Total1 offering, which launched in the second quarter in North America. Sales of contact lens solutions (-2%, +1% cc) were mixed, with growth in OptiFree and ClearCare products offset by declines in chemical disinfectant tail brands.
 
12
 
 

 
 
Sandoz
        Q2 2013       Q2 2012    
% change
      H1 2013       H1 2012    
% change
 
     
USD m
   
USD m
   
USD
   
cc
   
USD m
   
USD m
   
USD
   
cc
 
Net sales
      2 216       2 147       3       3       4 475       4 271       5       5  
Operating income
      259       259       0       2       510       557       -8       -7  
  As % of net sales
      11.7       12.1                       11.4       13.0                  
Core operating income
      360       349       3       4       791       731       8       9  
  As % of net sales
      16.2       16.3                       17.7       17.1                  

Second quarter

Net sales
Sandoz net sales increased by 3% (+3% cc) to USD 2.2 billion in the second quarter. Volume grew 15 percentage points (including 6 percentage points contributed by Fougera), and price erosion was 12 percentage points, reflecting significantly higher prior-year pricing for enoxaparin. Retail generics and biosimilars sales in Western Europe (excluding Germany) and emerging markets showed strong double-digit growth, while the US and Germany were flat.

US retail generics and biosimilars sales (USD 628 million) were in line with the previous year as enoxaparin sales decreased by USD 99 million to USD 57 million, offset by increased sales from the Fougera acquisition. Western Europe retail generics and biosimilars grew strongly (+14% cc), driven by double-digit growth in France and the UK. German sales of retail generics and biosimilars (USD 284 million) were flat and in line with the market. Japan grew 10% (cc). Emerging markets grew strongly, led by Central & Eastern Europe (+10% cc), Asia (+10% cc), Latin America (+24% cc), and the Middle East and Africa (+11% cc).

Sandoz continued to strengthen its leading position globally in biosimilars (USD 101 million, +19% cc), achieving its first quarter ever of over USD 100 million in sales. Strong double-digit sales growth was driven by momentum in its three in-market products – Omnitrope (human growth hormone), Binocrit (epoetin alfa) and Zarzio (filgrastim) – each of which is the leading biosimilar in its respective market segment. Zarzio became the first biosimilar to surpass both its reference product (Neupogen®) and market leader (Granocyte®) in sales volume in Europe and is now the most prescribed daily G-CSF product in Europe and the number one biosimilar daily G-CSF globally.

Operating income
Operating income was in line with prior year at USD 259 million (0%, +2% cc). Operating income margin in constant currencies decreased by 0.2 percentage points; currency had a negative impact of 0.2 percentage points, resulting in a net decrease of 0.4 percentage points to 11.7% of net sales. Adjustments to arrive at core operating income amounted to a net expense of USD 101 million, mainly due to the amortization of intangible assets.

Core operating income increased by 3% (+4% cc) to USD 360 million. Core operating income margin in constant currencies increased by 0.1 percentage points, benefitting from the addition of the Fougera business and strong sales performance in several high-margin markets, partly offset by high enoxaparin-driven price erosion. Currency had a negative impact of 0.2 percentage points, resulting in a net decrease of 0.1 percentage points to a core operating income margin of 16.2% of net sales. Gross margin including Fougera was unchanged (cc) in the quarter, as favorable sales mix was offset by price erosion. Marketing & Sales expenses increased by 0.5 percentage points (cc), driven by investments into strongly growing businesses in emerging markets and the presence of Fougera costs. R&D expenses decreased by 0.1 percentage points (cc), as overall investments grew slower than sales despite the continued ramp-up of investments into biosimilars and respiratory pipeline products. General & Administration expenses increased by 0.3 percentage points (cc), reflecting the impact of the Fougera integration. Other Income and Expense, net decreased by 0.8 percentage points (cc) due to lower net costs of litigation and legal settlements.

13
 
 

 
 
First half

Net sales
Net sales increased by 5% (+5% cc) to USD 4.5 billion driven by double-digit retail generics and biosimilars sales increases in Western Europe (excluding Germany) (+13%), Central & Eastern Europe (+13%), Latin America (+15%), and the Middle East and Africa (+17%); in Asia-Pacific sales grew 9%. Germany retail generics and biosimilars sales grew 2% in a flat market. US retail generics and biosimilars sales also showed 2% growth in a flat market, as the acquisition of Fougera compensated for the sharp decline in enoxaparin sales (from USD 332 million in the first half of 2012 to USD 104 million in the 2013 period). Biosimilars grew 21% in constant currencies to reach USD 195 million globally in the first half of 2013.

Volume increased 17 percentage points, including 6 percentage points contributed by Fougera. Price erosion was 12 percentage points in the first half, driven primarily by higher prior-year pricing for enoxaparin.

Operating income
Operating income decreased by 8% (-7% cc) to USD 510 million. Operating income margin in constant currencies decreased by 1.5 percentage points; currency had a negative impact of 0.1 percentage points, resulting in a net decrease of 1.6 percentage points to 11.4% of net sales, due to USD 79 million of provisions for legal matters recorded in the first quarter. Adjustments to arrive at core operating income amounted to a net expense of USD 281 million, mainly due to USD 202 million for the amortization of intangible assets and USD 79 million of legal provisions mentioned above.

Core operating income grew by 8% (+9% cc) to USD 791 million. Core operating income margin in constant currencies increased by 0.7 percentage points, benefitting from the addition of the Fougera business which offset the sharp decline in US enoxaparin sales, as well as a strong sales performance in several high-margin markets. Currency had a negative impact of 0.1 percentage points, resulting in a net increase of 0.6 percentage points to a core operating income margin of 17.7% of net sales. Gross margin increased by 1.3 percentage points (cc), reflecting a favorable sales mix together with productivity improvements, partly offset by price erosion. Marketing & Sales expenses increased by 0.6 percentage points (cc), driven by investments into strongly growing businesses in emerging markets and the presence of Fougera costs. R&D expenses decreased by 0.2 percentage points (cc), as overall investments grew slower than sales in the first half despite the continued ramp-up of investments into biosimilars and respiratory pipeline products. General & Administration expenses increased by 0.2 percentage points (cc), reflecting the impact of the Fougera integration. Other Income and Expense, net was unchanged compared to 2012.
 
14
 
 

 

Vaccines and Diagnostics
        Q2 2013       Q2 2012    
% change
      H1 2013       H1 2012    
% change
 
     
USD m
   
USD m
   
USD
   
cc
   
USD m
   
USD m
   
USD
   
cc
 
Net sales
      411       349       18       18       738       648       14       14  
Operating loss
      -83       -96       14       14       -240       -269       11       11  
  As % of net sales
      -20.2       -27.5                       -32.5       -41.5                  
Core operating loss
      -20       -90       78       78       -118       -208       43       44  
  As % of net sales
      -4.9       -25.8                       -16.0       -32.1                  

Second quarter

Net sales
Net sales grew 18% (+18% cc) to USD 411 million for the second quarter compared to USD 349 million in the prior-year period. Sales growth was driven by strong demand across our product portfolio, especially for seasonal influenza vaccines and bulk pediatric shipments.

Operating loss
Reported operating loss was USD 83 million for the second quarter compared to a loss of USD 96 million for the same period in 2012.

Adjustments to arrive at core operating loss amounted to USD 63 million, which included USD 57 million for the amortization of intangible assets, compared to adjustments of USD 6 million in the prior-year period, which benefited from an exceptional licensing settlement of USD 56 million.

Core operating loss for the second quarter was USD 20 million compared to a loss of USD 90 million for the same period in 2012. The improvement in core operating loss was driven by higher sales.

First half

Net sales
Net sales were up 14% (+14% cc) to USD 738 million for first half compared to USD 648 million for the same period in 2012. The strong US late flu season and bulk pediatric shipments supported double-digit sales growth for the division.

Operating loss
Reported operating loss was USD 240 million for first half compared to a loss of USD 269 million in 2012.

Adjustments to arrive at core operating loss amounted to USD 122 million, including USD 114 million for the amortization of intangible assets, compared to adjustments of USD 61 million in the same period in 2012, which benefited from the exceptional licensing settlement of USD 56 million mentioned above.

Core operating loss for the period was USD 118 million compared to a loss of USD 208 million for the 2012 period. The improvement in core operating loss was driven by higher sales and strong functional cost control.
 
15
 
 

 

Consumer Health
        Q2 2013       Q2 2012    
% change
      H1 2013       H1 2012    
% change
 
     
USD m
   
USD m
   
USD
   
cc
   
USD m
   
USD m
   
USD
   
cc
 
Net sales
      1 004       904       11       12       1 991       1 836       8       10  
Operating income
      29       0    
nm
   
nm
      40       12       233       216  
  As % of net sales
      2.9       0.0                       2.0       0.7                  
Core operating income
      52       18       189       186       128       59       117       118  
  As % of net sales
      5.2       2.0                       6.4       3.2                  

Second quarter

Net sales
Consumer Health sales increased 11% (+12% cc) in the second quarter as both the OTC and Animal Health businesses delivered double-digit growth versus the same period last year driven by strong base business performance and product re-launches. OTC continued to engage third-party manufacturers as part of its global supply chain strategy and resumed shipping Benefiber to retailers in June. Shipments of Theraflu in North America will resume later in the year. In April, Animal Health resumed shipments of Sentinel in the US from the Lincoln, Nebraska manufacturing plant.

OTC’s double-digit sales growth in the second quarter was driven by recent re-launches of key OTC brands Excedrin, Lamisil, Triaminic and Benefiber in the US and the continued growth of three of OTC’s largest brands Voltaren, Otrivin and Theraflu globally. Also contributing to OTC’s strong sales performance in the second quarter was broad-based double-digit growth in the emerging markets China, Russia, Ukraine, Brazil and Poland. Voltaren, the second largest and fastest-growing analgesic brand globally, delivered double-digit sales growth in the second quarter. The extra strength and extended relief (12 hours) formulation is now available in 11 countries in Europe. Theraflu and Otrivin, the world’s best-selling, non-prescription nasal decongestant spray, also contributed double-digit sales increases in the quarter driven by Russia and Poland. In May, Otrivin was successfully launched in China, establishing another key brand in the second largest global OTC market. Excedrin continued to regain momentum in the US and gained market share in Poland where it was introduced in the fourth quarter of 2012 as part of OTC’s plan to expand the brand globally.

Animal Health delivered double-digit growth compared to the second quarter of 2012, well ahead of the market. In April, Sentinel, a companion animal parasiticide product, resumed shipments in North America from the Lincoln facility, and the brand is now strongly regaining market share. In Europe, the business delivered mid-single digit growth, led by Germany, Iberia and Italy. Milbemax retained its position as the number one de-wormer for cats and dogs in that region, with high double-digit sales growth. Denagard, an anti-infective for pigs and poultry, continued to drive growth across several markets with particularly strong results in the US and Vietnam. Emerging Growth Markets delivered double-digit growth, led by Brazil, Russia, India, Thailand and Vietnam.

Operating income
Consumer Health second quarter operating income increased to USD 29 million from a base of zero in the prior-year period. Gross margin from incremental sales and lower remediation costs was partially offset by commercial investment behind the product re-launches and the support of key brands. Operating income margin increased by 2.9 percentage points, including a favorable currency impact of 0.1 percentage points, to 2.9% of net sales.

During the second quarter, the first phase of a restructuring and simplification plan for the Lincoln plant was completed as planned with the reduction of 113 positions.

Adjustments to arrive at core operating income amounted to USD 23 million, mainly from the amortization and impairment of intangible assets.

Core operating income increased 189% (+186% cc) to USD 52 million. Core operating income margin in constant currencies increased 3.1 percentage points; currency had a positive impact of 0.1 percentage points, resulting in a net increase of 3.2 percentage points to 5.2% of net sales. Lower quality remediation costs at Lincoln and higher revenues generated a gross margin increase of 3.2 percentage points (cc). Marketing & Sales expenses increased by 0.2 percentage points (cc) behind investments to support the re-launch of products as well as drive growth of key brands and emerging markets. R&D expenses decreased by 0.7 percentage points and General & Administration expenses increased by 0.6 percentage points (cc).
 
16
 
 

 
 
First half

Net sales
Consumer Health returned to growth in the first half as sales increased 8% (+10% cc) to USD 2.0 billion.

OTC sales grew double-digit over the first half of 2012 mainly due to recent re-launches of Excedrin, Lamisil, Benefiber and Triaminic, as well as increased sales of Voltaren, Otrivin and Theraflu. Double-digit sales growth continued in emerging markets, particularly Russia, China and Poland. Voltaren delivered double-digit sales growth in the first half supported by continued success of the extra strength and extended relief (12 hours) formulation. Theraflu and Otrivin also had double-digit sales increases in the first half of the year, benefiting from a strong cough cold season in Russia and Poland. Excedrin continued to regain momentum following US re-launches in the fourth quarter of 2012 and the first quarter of this year.

Animal Health delivered mid-single digit growth compared to the first half of 2012. In April, Animal Health resumed sales of companion animal parasiticides in the US with the re-launch of the Sentinel brand, which has rapidly gained significant distribution and market share. In Europe, the business also delivered mid-single digit growth, led by Milbemax performance in Germany, France and the UK. Emerging Growth Markets continued to deliver double-digit growth, led by Brazil, Russia, India, Thailand and Vietnam.

Operating income
Consumer Health reported first half operating income of USD 40 million versus prior-year income of USD 12 million. Operating income margin increased by 1.3 percentage points to 2.0% of sales with no currency impact.

Adjustments to arrive at core operating income amounted to USD 88 million, driven by USD 53 million of impairment and other charges and provisions for the restructuring of the Consumer Health facility at Lincoln, Nebraska and USD 35 million for the amortization and impairment of intangible assets.

Core operating income increased 117% (+118% cc) to USD 128 million and core operating income margin increased 3.2 percentage points to 6.4% of net sales with no currency impact.

Lower costs to upgrade quality at the Lincoln manufacturing facility and higher revenues generated a gross margin increase of 2.8 percentage points (cc). Marketing & Sales expenses increased by 0.4 percentage points (cc) behind investments to support the re-launch of products as well as investments in key brands and emerging markets. R&D expenses decreased by 0.3 percentage points (cc) and General & Administration expenses increased by 0.6 percentage points (cc). Other Income and Expenses, net improved margin by 1.1 percentage points (cc), largely due to income for the divestment of tail brands in OTC earlier in the year.
 
17
 
 

 

CASH FLOW AND GROUP BALANCE SHEET

Cash flow

Second quarter
Cash flow from operating activities in the second quarter of 2013 amounted to USD 2.5 billion compared to USD 3.0 billion in the prior-year period. The reduction compared to the prior year was mainly due to higher working capital requirements, partly compensated by lower tax payments.

The cash outflow for investing activities of USD 0.6 billion was approximately on last year’s level and mainly on account of investments in property, plant and equipment.

The cash flow used in financing activities amounted to USD 2.5 billion in the second quarter of 2013, mainly due to the repayment of a USD 2.0 billion bond and treasury share transactions amounting to USD 0.7 billion to mitigate the impact of the exercise of options related to our employee participation programs.

In the prior-year quarter, the cash flow used in financing activities amounted to USD 1.7 billion due to net repayments of long- and short-term loans of USD 1.5 billion and treasury share transactions amounting to USD 0.3 billion.

Free cash flow was USD 1.8 billion for the second quarter compared to USD 2.3 billion in 2012, mainly due to increased trade receivables from the timing of collections in Spain and the US, as well as higher capital investments.

First half
Cash flow from operating activities in the first half of 2013 amounted to USD 4.3 billion compared to USD 5.5 billion in the prior-year period due to higher working capital requirements.

The cash flow from investing activities was approximately neutral as investments in property, plant and equipment of USD 1.2 billion and the purchase of other non-current assets for USD 0.3 billion were offset by the proceeds from the sale of marketable securities of USD 1.4 billion and intangible assets of USD 0.3 billion. In the prior-year period, investing activities resulted in a cash outflow of USD 1.2 billion, mainly on account of investments in property, plant and equipment of USD 1.0 billion.

The cash flow used in financing activities, which includes the dividend payment of USD 6.1 billion, amounted to USD 5.9 billion in the first half of 2013, compared to USD 3.4 billion in the prior-year period. The difference was mainly on account of financial debts which led to a net cash outflow of USD 0.2 billion in the current period and a net cash inflow of USD 2.7 billion in the 2012 period, offset by a net USD 0.5 billion of proceeds from treasury share movements during the first half of 2013.

Free cash flow of USD 3.1 billion was below the previous year, mainly due to increased trade receivables from the timing of collections in Spain and the US, higher capital investments and an increase in inventory as safety stock.

Balance sheet

Assets
Total non-current assets amounted to USD 94.2 billion at June 30, 2013 compared to USD 96.2 billion at December 31, 2012. Appreciation of the US dollar versus other key currencies contributed USD 1.0 billion to this reduction. The additional reduction of USD 1.0 billion is mainly due to the amortization of intangible assets.

Total current assets of USD 26.8 billion at June 30, 2013 reduced by USD 1.2 billion compared to the prior-year end as the reduction in cash, short-term deposits and marketable securities of USD 2.9 billion was partially compensated by increases in trade receivables of USD 0.7 billion, inventories of USD 0.5 billion and other current assets of USD 0.5 billion.

18
 
 

 


Financial debt
Total short-term and long-term financial debt including derivatives amounted to USD 18.9 billion at June 30, 2013 compared to USD 19.7 billion at December 31, 2012. Long-term debt decreased to USD 11.6 billion from USD 13.8 billion at the end of 2012 mainly as a result of a reclassification of a USD 2.0 billion bond, which matures within 12 months, to short-term borrowings. Short-term borrowings increased to USD 7.3 billion at June 30, 2013 from USD 5.9 billion at the prior-year end.

Liabilities
Other non-current liabilities amounted to USD 15.4 billion at June 30, 2013 compared to USD 17.1 billion at December 31, 2012. Trade payables of USD 5.0 billion and other current liabilities of USD 12.1 billion at June 30, 2013 reduced by USD 0.6 billion and USD 0.4 billion, respectively compared to the end of 2012.

Group equity
The Group’s total equity increased slightly to USD 69.6 billion as of June 30, 2013, compared to an equity of USD 69.3 billion at the end of 2012. This increase was driven by the net income of USD 5.0 billion, actuarial gains on defined benefit pension plans of USD 1.0 billion and net proceeds from the sale of treasury shares of USD 0.5 billion, partly offset by the dividend payment of USD 6.1 billion.

Net debt and debt/equity ratio
The Group’s debt/equity ratio marginally improved to 0.27:1 at June 30, 2013 compared to 0.28:1 at December 31, 2012. The Group’s liquidity amounted to USD 5.3 billion at the end of the first half of 2013, compared to USD 8.1 billion at the end of 2012, and net debt increased by USD 2.0 billion to USD 13.6 billion in the same period.
 
19
 
 

 

INNOVATION REVIEW

Benefiting from our continued focus on innovation, Novartis has one of the industry’s most competitive pipelines with more than 200 projects in clinical development, including 141 in Pharmaceuticals.

Key developments in the second quarter of 2013 include:

New approvals and positive opinions

·  
In July, the EMA approved Lucentis (ranibizumab) as a treatment for visual impairment due to choroidal neovascularization secondary to pathologic myopia, following a positive CHMP opinion in the second quarter. This is the fourth major ocular indication for Lucentis in the EU.

·  
The FDA approved Ilaris (canakinumab) for the treatment of active systemic juvenile idiopathic arthritis (SJIA) in patients aged two years and older. Ilaris is the first interleukin-1 beta (IL-1 beta) inhibitor approved for SJIA and the only treatment approved specifically for SJIA that is given as a once-monthly subcutaneous injection. SJIA is a rare and disabling form of childhood arthritis characterized by spiking fever, rash and arthritis.

·  
The FDA expanded the approved indication for Exelon Patch, which was already approved for the treatment of mild to moderate dementia of the Alzheimer's type and mild to moderate dementia associated with Parkinson's disease, to include the treatment of patients with severe Alzheimer’s disease.

·  
Following approval by the FDA in January, the EMA approved Gleevec/Glivec (imatinib) in July for pediatric patients with newly-diagnosed Philadelphia chromosome-positive acute lymphoblastic leukemia (Ph+ ALL) in combination with chemotherapy. ALL is the most common type of cancer in children, with approximately 5,000 children in Europe diagnosed each year.

·  
The FDA also approved Alcon’s Simbrinza Suspension (Brinzolamide 1.0%/Brimonidine 0.2%) for the reduction of elevated intraocular pressure in patients with primary open-angle glaucoma or ocular hypertension.

·  
Alcon received marketing authorization for Ilevro (nepafenac 0.3 ophthalmic suspension) in Europe as a once-a-day treatment for ocular pain and inflammation associated with cataract surgery.

·  
Alcon received approval to market AcrySof IQ ReSTOR 2.5D in Brazil. This new offering will provide Brazilian cataract patients desiring presbyopic correction with a choice to address lifestyle preferences with activities requiring excellent intermediate vision in addition to excellent distance vision.

Regulatory submissions and filings

·  
RLX030 (serelaxin) received Breakthrough Therapy designation from the FDA based on results from the Phase III RELAX-AHF study, which showed a substantial improvement over currently available therapies for acute heart failure (AHF), a life-threatening illness. In the second quarter, Novartis completed regulatory submissions for serelaxin in AHF in the US, Singapore, Indonesia, Chile, Argentina, Australia and Taiwan.

·  
Eucreas (vidagliptin, metformin) high strength was submitted in China for use in diabetes patients requiring combination therapy.

·  
Alcon submitted an application for approval of Simbrinza Suspension in Europe.

Results from ongoing trials

·  
Top-line results from the head-to-head Phase III FIXTURE trial of more than 1,300 moderate-to-severe plaque psoriasis patients demonstrated the superiority of AIN457 (secukinumab) to Enbrel® (etanercept) in clearing skin. AIN457 met all primary and secondary endpoints in the trial, expected to support regulatory submissions in the second half of 2013.
 
20
 
 

 
 
·  
Results from the Phase III GLACIAL study showed that omalizumab, marketed as Xolair in more than 90 countries for the treatment of severe allergic asthma, was effective, safe and well tolerated in refractory chronic spontaneous urticaria (CSU) patients, including those on antihistamines at up to four times the approved dose. CSU, also known as chronic idiopathic urticaria (CIU) in the US, is a chronic and debilitating form of hives. GLACIAL, which is the second of three omalizumab pivotal Phase III studies in CSU, met all key efficacy endpoints. Regulatory submissions are on track for the second half of 2013.

·  
The Phase III BOLERO-3 trial evaluating Afinitor (everolimus) tablets met the primary endpoint and results were presented at the American Society of Clinical Oncology (ASCO) annual meeting. The study examined heavily pretreated women with human epidermal growth factor receptor-2 positive (HER2 positive) advanced breast cancer who received prior taxane therapy and whose disease is resistant to prior trastuzumab (Herceptin®) treatment. The study showed that the addition of everolimus to trastuzumab and vinorelbine significantly extended progression-free survival and resulted in a reduction in the risk of disease progression by 22% (HR=0.78; 95% CI: 0.65 to 0.95; p<0.01).

·  
Data presented at the European Hematology Association (EHA) annual meeting showed that Jakavi (ruxolitinib) improved overall survival and sustained reductions in spleen size compared to conventional therapy. In this three-year follow-up analysis of the Phase III COMFORT-II study, a 52% reduction in risk of death was observed in the Jakavi arm compared with conventional therapy (HR=0.48; 95% CI: 0.28 to 0.85; p=0.009).

·  
Data on investigational compound LDK378 presented at ASCO, showed an overall response rate of 60% in patients with anaplastic lymphoma kinase positive (ALK+) metastatic non-small cell lung cancer (NSCLC) taking LDK378 (750 mg/day), which includes patients who had progressed during or after crizotinib therapy (overall response rate of 59%) and those who were crizotinib-naïve (overall response rate of 62%). In addition to the 78 patients treated at 750 mg/day, an additional 36 patients were treated with LDK378 at 400-750 mg/day.

·  
The IGNITE clinical trial program continued to demonstrate strength of the investigational Novartis COPD portfolio. Data from the 26-week Phase III SHINE study were published in the European Respiratory Journal. The results showed that investigational once-daily (QD) dual bronchodilator QVA149 (indacaterol maleate 110 mcg/glycopyrronium 50 mcg) provided statistically significant improvements in lung function (as measured by trough FEV1) compared to both indacaterol maleate 150 mcg and glycopyrronium 50 mcg (primary endpoint), placebo and open-label (OL) tiotropium 18 mcg (secondary endpoint) following 26 weeks of treatment. These findings were obtained irrespective of age, gender, COPD severity, smoking status, and baseline inhaled corticosteroid use. In addition, data from the Phase III SPARK study were presented at the American Thoracic Society International Conference. The results showed that QVA149 reduced the overall rate of exacerbations, improved lung function and health-related quality of life compared to QD glycopyrronium 50 mcg and QD open-label tiotropium 18 mcg in patients with severe and very severe COPD. The rate of moderate or severe exacerbations was numerically lower (p=0.096) in patients on QVA149 compared to OL tiotropium 18 mcg.

·  
New analyses from the Phase III TRANSFORMS study of Gilenya (fingolimod) presented at the European Neurological Society (ENS) annual meeting demonstrated a treatment effect on all four key measures of disease activity in multiple sclerosis (MS), including brain volume loss, lesion activity, relapse rates and disability progression. Improvements were seen in patients who switched from standard interferon (interferon beta-1a) treatment to Gilenya within 12 months of the switch and up to the end of the 4.5 year extension study, with almost 50% more patients being free of MS disease activity in this period and annualized relapse rates reduced by more than 50% after one year for patients who switched.

·  
New data presented at the Association for Research in Vision and Ophthalmology (ARVO) annual meeting showed a 59% reduction of legal blindness attributable to wet AMD since the introduction of Lucentis with 9.7 injections spread over 5 years. Also at ARVO, the largest comprehensive evaluation of Lucentis safety data to date, covering 22 studies and 10,300 patients, reported a safety profile consistent with that from individual randomized, controlled clinical trials.

21
 
 

 
 
·  
First results from the Phase III study SOM230C2402 showed that a statistically significant greater proportion of acromegaly patients treated with pasireotide LAR saw a reduction of mean GH levels to < 2.5 µg/L and normalization of sex- and age-adjusted IGF-1 at 24 weeks versus continued treatment with octreotide or lanreotide, meeting the primary objective of the study. C2402 is a multicenter, randomized study of double-blind pasireotide LAR 40 mg and pasireotide LAR 60 mg versus open-label octreotide LAR 30 mg or lanreotide ATG 120 mg, in patients with inadequately controlled acromegaly. Full results of the study will be submitted for presentation at an upcoming congress. Novartis plans to include these results in regulatory submissions for pasireotide LAR in acromegaly and has initiated discussions with health authorities worldwide.

·  
Results of the Phase III trial evaluating the investigational therapy TKI258 showed the drug did not meet its primary endpoint of progression-free survival compared to sorafenib in patients with metastatic renal cell carcinoma (mRCC) after failure with prior therapies. The TKI258 program continues with ongoing solid tumor studies.

·  
Sandoz initiated a major Phase III clinical trial with its biosimilar version of etanercept (biosimilar Enbrel®) in patients with moderate to severe chronic plaque-type psoriasis, underlining its global leadership in biosimilars.

 
Q2 2013 selected approvals: US, Europe and Japan
 
Product
Active ingredient
Indication
Approval date
Glivec/Gleevec
Imatinib
Pediatric Ph+ acute lymphoblastic leukemia
US – January
EU - July
Lucentis
Ranibizumab
Visual impairment due to choroidal neovascularization secondary to pathologic myopia (myopic CNV)
EU – July
Ilaris
Canakinumab
Systemic juvenile idiopathic arthritis (SJIA)
US – May
Exelon Patch
Rivastigmine
Severe Alzheimer’s disease
US – June
Simbrinza Suspension
Brinzolamide/Brimonidine
Intraocular pressure due to primary open-angle glaucoma or ocular hypertension
US – April

 
Selected projects awaiting regulatory decisions
 
   
Completed submissions
 
Product
Indication
US
EU
Japan
News update
ACZ885
Gouty arthritis
 
Approved
 
- EMA approved in Feb. 2013
- Phase III program under revision based on FDA feedback
 
SJIA
Approved
Q4 2012
 
- FDA approved in May 2013
Exelon
Severe Alzheimer’s disease
Approved
Q4 2012
   
Lucentis
Visual impairment due to diabetic macular edema
 
Approved
Q1 2012
 
 
Visual impair-ment due to macular edema secondary to retinal vein occlusion
 
Approved
Q4 2012
- Japan filing achieved in Oct. 2012
 
Myopic CNV
 
Approved
Q4 2012
- Japan filing achieved in Oct. 2012
- EU approval in Jul. 2013
NVA237
Chronic obstructive pulmonary disease (COPD)
 
Approved
Approved
- Phase III agreed with FDA; US trials initiated Q4 2012, filing expected in Q1 2014
 
22
 
 

 
 
QVA149
COPD
 
Q4 2012
Q4 2012
- Phase III agreed with FDA; US trials initiated Q4 2012; filing in the US expected end of 2014
- EU marketing authorization application filed in Oct. 2012
- Japan marketing authorization submission achieved Nov. 2012
RLX030
Acute heart failure
Q2 2013
Q4 2012
 
- EU submission Dec. 2012
- US submission May 2013 following FDA Breakthrough Therapy designation
- Novartis plans to initiate RELAX-AHF-2 in H2 2013, designed to replicate the mortality results from RELAX-AHF

Selected Pharmaceuticals pipeline projects
Project/ Compound
Potential indication/ Disease area
First planned submissions
Current Phase
News update
ACZ885
Secondary prevention of cardiovascular events
2016
III
 
Afinitor/Votubia
HER2+ breast cancer 1st line
2014
III
 
HER2+ breast cancer 2nd/3rd line
2013
III
- BOLERO-3 study met primary endpoint; data presented at ASCO 2013
Hepatocellular cancer
2013
III
 
Non-functioning GI/lung, NET
2015
III
 
TSC seizure
2015
III
- Phase III enrollment initiated
Diffuse large B-cell lymphoma
2015
III
 
AFQ056
Fragile X syndrome
2014
III
 
Parkinson’s disease, L-dopa induced dyskinesia
2015
 
II
 
AIN457
Psoriasis
2013
III
- Data from six Phase III studies and regulatory submissions expected in H2 2013
Rheumatoid arthritis
2014
III
- Phase III in progress
 
Psoriatic arthritis
2014
III
- Phase III in progress
 
Ankylosing spondylitis
2014
III
- Phase III in progress
 
Multiple sclerosis (MS)
≥ 2017
II
 
 
Uveitis
≥ 2017
II
- Positive proof of concept study presented at ARVO in May 2013
Aliskiren
Chronic heart failure
2016
III
- Phase III outcome study (ATMOSPHERE) ongoing in heart failure
AUY922
Solid tumors
≥ 2017
II
 
BAF312
Secondary progressive MS
≥ 2017
III
- Phase III study in secondary progressive MS began Q4 2012
BCT197
COPD
≥ 2017
II
 
BEZ235
Solid tumors
≥ 2017
II
 
BGJ398
Solid tumors
≥ 2017
II
 
BGS649
Obese hypogonadotropic hypogonadism
≥ 2017
II
 
BKM120
Breast cancer
2015
III
- Phase III program in breast cancer began enrollment
 
Solid tumors
≥ 2017
I
 
BYL719
Solid tumors
≥ 2017
I
 
BYM338
Sporadic inclusion body myositis
2016
II
 
 
23
 
 

 
 
CAD106
Alzheimer’s disease
≥ 2017
II
 
CTL019
Leukemia
2016
II
 
DEB025
Hepatitis C
≥ 2017
II
- Revision of partial clinical hold, Phase II - DDI study initiated
Gilenya
Chronic inflammatory demyelinating neuropathy
2016
III
 
Jakavi
Polycythemia vera
2014
III
- Phase III RESPONSE study fully enrolled
KAE609
Malaria
≥ 2017
II
 
LBH589
Relapsed or relapsed-and-refractory multiple myeloma
2013
III
 
LCI699
Cushing’s
2016
II
 
LCQ908
Familial chylomicronemia syndrome
2014
III
- Phase III study recruitment completed
LCZ696
Chronic heart failure (reduced ejection fraction- REF)
2014
III
- Phase III outcomes study (PARADIGM-HF) ongoing
 
Chronic heart failure (preserved ejection fraction- PEF)
>2017
II
- Phase III outcomes study (PARAGON-HF) to start in Q4 2013
 
Hypertension
2013
III
- Phase III ongoing, planned submission in Japan, Asia, and Latin American countries
LDE225
Advanced basal cell carcinoma
2014
II
 
 
Solid tumors
≥ 2017
I
 
Medulloblastoma
≥ 2017
III
 
LDK378
ALK-positive advanced non-small cell lung cancer
2014
II
- Data presented at ASCO
- Phase II trials ongoing with Phase III trials expected in 2013
- First filing expected in early 2014
LFF571
Clostridium difficile infection
≥ 2017
II
 
LGX818
Solid tumors
≥ 2017
II
 
LIK066
Type II diabetes
≥ 2017
II
 
Lucentis
Choroidal neovascularization and macular edema
2016
II
- Choroidal neovascularization and macular edema secondary to conditions other than age-related macular degeneration, diabetic macular edema, retinal vein occlusion and myopic CNV
MEK162
Solid tumors
2015
II
- Pivotal Phase III study initiated
PKC412
 
 
Aggressive systemic mastocytosis
2015
II
 
Acute myeloid leukemia
2015
III
 
QAW039
Asthma
≥ 2017
II
 
QGE031
Severe allergic diseases
≥ 2017
II
- Phase II activities ongoing in food allergy and asthma
QMF149
COPD
2016
II
 
Asthma
2016
II
 
Signifor LAR1
Acromegaly
2013
III
- Phase III study in inadequately controlled acromegaly met primary endpoint
 
Cushing’s
2015
III
 
Tasigna
CML treatment free
≥ 2017
II
 
 
24
 
 

 


TKI258
Solid tumors
2016
II
- Phase III trial did not meet primary endpoint of progression-free survival compared to sorafenib in patients with mRCC after failure with prior therapies
Xolair
Chronic spontaneous urticaria (CSU)
2013
III
- Phase III program completed
- Submission for CSU indication planned in H2 2013
1 Long-acting release

 
Selected Alcon pipeline projects
 
Project/ Compound
Potential indication/ Disease area
Planned submissions
Current Phase
News update
SURGICAL
AcrySof IQ ReSTOR IOL 2.5D
Cataract
US 2013
JP 2013
Advanced
Advanced
- US filing planned for Aug. 2013
AcrySof IQ ReSTOR Toric IOL 2.5D
Cataract
US 2014
JP 2015
Advanced
Advanced
 
AcrySof IQ ReSTOR 3.0D Toric IOL
Cataract
US 2013
JP 2013
Advanced
Filed
- Filing expected Jul. 2013
- Filing occurred Q1 2013
AcrySof IQ ReSTOR 3.0D Toric IOL diopter range expansion
Cataract
US 2014
JP 2015
Advanced
Advanced
 
AcrySof IQ Toric IOL low diopter range expansion
Cataract
US 2013
JP 2013
Advanced
Advanced
- US filing expected Aug. 2013
AcrySof Cachet angle-supported phakic lens
Refractive
US 2013
JP 2013
Advanced
Advanced
 
Infiniti system upgrade