ALCON INC.

ALC
Delayed Quote. Delayed  - 09/24 04:33:54 am
52.22CHF -1.02%

Alcon : Novartis delivered strong H1 performance, FY 2020 guidance confirmed at higher end for core operating income and lower end for sales

07/22/2020 | 10:36am

Basel - commenting on the quarter, Vas Narasimhan, CEO of Novartis, said: 'Novartis performed strongly in the first half, despite the impact from COVID-19, demonstrating the resilience and agility of our associates and operations.

We continued to advance our broad range of efforts to support the COVID-19 pandemic response. Our growth drivers and launches continue their strong momentum, with Cosentyx and Entresto increasing market share in the US. We are on track to deliver on our commitment to drive consistent margin expansion and are excited by the progress of our deep mid to late stage pipeline to drive long-term growth'.

Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 54 of the Condensed Interim Financial Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year.

Refers to continuing operations as defined on page 42 of the Condensed Interim Financial Report, excludes Alcon, includes the businesses of Innovative Medicines and Sandoz, as well as the continuing corporate functions.

COVID-19 Update

The COVID-19 situation continues to evolve and is taking differing courses across the multitude of geographies that Novartis operates in. Our primary concerns remain the health and safety of our associates and patients while we also continue to take strong actions to help address the pandemic.

During the second quarter, COVID-19 had an impact on our business with forward purchasing from the first quarter largely reversing. Despite this our operations remain stable with record high customer service levels. Our cash collections continue to be according to our normal trade terms, and days sales outstanding at normal levels. Our product portfolio remains resilient despite COVID-19 negatively impacting sales in April and May, particularly: Lucentis and mature ophthalmology, new patient starts in dermatology and Sandoz retail. Sales were mostly affected by lower new patient starts and significant reduction in patient visits to physicians. This impact showed improvement in the latter part of the quarter. Novartis is closely monitoring the situation and will provide an update with Q3 results. We implemented and embraced new ways of working, which include less travel and meeting costs. Novartis remains well positioned to meet its ongoing financial obligations and has sufficient liquidity to support our normal business activities.

At present drug development operations are continuing with manageable disruptions, with our SENSE and Site Cockpit digital technologies allowing us to proactively manage our clinical trials portfolio and rapidly mitigate site-level disruptions. Thus far, these measures have limited COVID-related impacts to our expected submission timelines over the next several years. Phase III clinical trials evaluating canakinumab in patients with pneumonia as a result of SARS-CoV-2 infection, and ruxolitinib in combination with standard of care compared to SoC alone, in collaboration with Incyte, are continuing. Data readouts from these studies are expected in the second half of 2020. We continue to support 35+ ongoing investigator-initiated trials involving 10 Novartis medicines.

In July, Novartis launched a first-of-its-kind not-for-profit portfolio of medicines for symptomatic treatment of COVID-19. The new portfolio of 15 medicines from the Sandoz division addresses urgent unmet needs of low and lower middle income countries to treat patients with COVID-19 symptoms. The portfolio will be sold at no profit to governments in up to 79 eligible low and lower middle income countries during the pandemic and until a vaccine or curative treatment is available.

Resolving legacy legal matters

We are continuing our long term journey to build trust with society and during the second quarter we resolved some of our legacy compliance issues. We finalized our USD 678 million settlement relating to a civil suit challenging speaker programs and other promotional events conducted in the US (2002 - 2011) as well as USD 51 million related to the company's support of certain independent charitable co-pay foundations (2010 - 2014). Provisions for these settlements were previously made. Novartis has agreed to new corporate integrity obligations with the US Department of Health & Human Services that will mean we will continue to evolve our approach to peer-to-peer medical education. Such education will transition towards a digital format in keeping with the changes that we have made and seen to be effective in recent months. All Foreign Corrupt Practices Act (FCPA) investigations into Novartis are now closed with the settlement that we have reached with the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC). As part of the settlements, Novartis and certain of its current and former subsidiaries agreed to pay USD 234 million to the DOJ and USD 113 million to the SEC.

Financials

In order to comply with International Financial Reporting Standards (IFRS), Novartis has separated the Group's reported financial data into 'continuing' and 'discontinued' operations. The results of the Alcon business in 2019 are reported as discontinued operations.

The commentary below focuses on continuing operations including the businesses of Innovative Medicines and Sandoz, as well as the continuing Corporate functions. We also provide information on discontinued operations.

Continuing operations second quarter

Net sales were USD 11.3 billion (-4%, -1% cc) in the second quarter. Volume contributed 5 percentage points to sales growth driven by Entresto, Zolgensma and Cosentyx, partly offset by the impacts of COVID-19. Volume growth was offset by price erosion of 3 percentage points and negative impact from generic competition of 3 percentage points.

Operating income was USD 2.4 billion (-12%, -4% cc) mainly due to lower sales and higher impairments partly offset by lower spending and improved gross margin.

Net income was USD 1.9 billion (-11%, -4% cc) mainly due to lower operating income. EPS was USD 0.82 (-10%, -3% cc), decreasing less than net income benefiting from lower weighted average number of shares outstanding.

Core operating income was USD 3.7 billion (+1%, +6% cc) due to lower spending and improved gross margin, driven by productivity and product mix, partly offset by lower sales. Core operating income margin was 32.3% of net sales, increasing by 1.3 percentage points (+2.1 percentage points cc).

Core net income was USD 3.1 billion (0%, +5% cc) mainly driven by growth in core operating income. Core EPS was USD 1.36 (+1%, +6% cc), growing faster than core net income benefiting from lower weighted average number of shares outstanding.

Free cash flow from continuing operations amounted to USD 3.6 billion (+1%), broadly in line with the prior year quarter, as favorable working capital was offset by lower divestment proceeds.

Innovative Medicines net sales were USD 9.2 billion (-1%, +1% cc). Pharmaceuticals BU sales grew 1% (cc), as the launch uptake of Zolgensma and continuing momentum on Entresto and Cosentyx were mostly offset by the negative impact of the COVID-19 pandemic, particularly in ophthalmology and new patient starts in dermatology. Oncology BU grew 1% (cc) as the continuing momentum on Promacta/Revolade, Kymriah, Kisqali and Tafinlar + Mekinist as well as the launch uptake of Piqray was mostly offset by generic competition for Afinitor and Exjade and the negative impact of the COVID-19 pandemic, particularly in radioligand therapy. Generic competition had a negative impact of 4 percentage points, mainly driven by Afinitor, Exjade and Travatan, and net pricing had a negative impact of 4 percentage points. Volume contributed 9 percentage points to sales growth.

Sandoz net sales were USD 2.2 billion (-11%, -9% cc) as volume declined 9 percentage points (cc) and pricing was in line with prior year, benefiting from favorable revenue deduction adjustments. The sales decline was due to COVID-19 negative impacts, mainly the reversal of Q1 forward purchasing and lower retail demand, some contract discontinuations in the US and a higher prior year base that included several first to market launches. The decline was partly offset by global sales of biopharmaceuticals growing 19% (cc), driven by double digit growth in Europe and the US.

Continuing operations first half

Net sales were USD 23.6 billion (+3%, +6% cc) in the first half mainly driven by Entresto, Zolgensma and Cosentyx. Volume contributed 11 percentage points to sales growth, despite being impacted by COVID-19. Strong volume growth was partly offset by price erosion of 3 percentage points and negative impact from generic competition of 2 percentage points.

Operating income was USD 5.1 billion (+4%, +11% cc) mainly driven by sales growth and lower legal expenses, partly offset by higher amortization and lower divestments.

Net income was USD 4.0 billion (+2%, +9% cc) mainly driven by higher operating income, partly offset by higher financial expenses. EPS was USD 1.77 (+3%, +11% cc), growing faster than net income benefiting from lower weighted average number of shares outstanding.

Core operating income was USD 7.8 billion (+14%, +19% cc) mainly driven by higher sales and improved gross margin, partly offset by launch investments. Core operating income margin was 33.2% of net sales, increasing by 3.0 percentage points (+3.8 percentage points cc).

Core net income was USD 6.7 billion (+13%, +18% cc) mainly driven by growth in core operating income. Core EPS was USD 2.92 (+15%, +19% cc), growing faster than core net income benefiting from lower weighted average number of shares outstanding.

Free cash flow from continuing operations amounted to USD 5.7 billion (+3%) compared to USD 5.5 billion in the prior year period. This increase was mainly driven by higher operating income adjusted for non-cash items and other adjustments, partly offset by lower divestment proceeds.

Innovative Medicines net sales were USD 18.9 billion (+5%, +7% cc). Pharmaceuticals BU grew 8% (cc) driven by Entresto (+50% cc), Zolgensma (USD 0.4 billion), Cosentyx (+15% cc) and the Xiidra acquisition, partly offset by declines in Lucentis and other ophthalmology products, driven mainly by lower demand due to COVID-19. Oncology BU grew 6% (cc) driven by Promacta/Revolade (+28% cc), Piqray (USD 0.2 billion) and Kisqali (+64% cc). Volume contributed 13 percentage points to sales growth. Generic competition had a negative impact of 3 percentage points. Net pricing had a negative impact of 3 percentage points.

Sandoz net sales were USD 4.7 billion (-2%, +1% cc). Volume growth of 3 percentage points (cc), partially offset by 2 percentage points (cc) of price erosion, benefiting from favorable revenue deduction adjustments. Sales in Europe grew 5% (cc), while sales in the US declined 12%, driven by oral solids. Global sales of Biopharmaceuticals grew 25% (cc), driven by strong double digit growth in Europe and the US.

Discontinued operations

Discontinued operations include the business of Alcon and certain corporate costs directly attributable to Alcon up to the spin-off date. As the Alcon spin-off was completed on April 9, 2019, the first half of the prior year includes three months of operating results of the divested business.

In the first half of 2020, there were no activities related to discontinued operations. In the first half of 2019, discontinued operations net sales were USD 1.8 billion, operating income amounted to USD 71 million and net income from discontinued operations was USD 4.6 billion, including the non-taxable non-cash net gain on distribution of Alcon Inc. to Novartis AG shareholders which amounted to USD 4.7 billion.

Total Group first half

For the total Group, net income amounted to USD 4.0 billion compared to USD 8.6 billion in prior year, including the non-taxable non-cash net gain on distribution of Alcon Inc. Basic earnings per share was USD 1.77 compared to USD 3.70 in prior year. Cash flow from operating activities for the total Group amounted to USD 6.5 billion and free cash flow to USD 5.7 billion.

Disclaimer

This press release contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, that can generally be identified by words such as 'continue,' 'growth,' 'expected,' 'to grow,' 'demonstrating,' 'to advance,' 'to support,' 'increasing,' 'to deliver,' 'to drive,' 'to evolve,' 'remain,' 'taking,' 'to take,' 'to help,' 'trends,' 'continuing,' 'allowing,' 'to start,' ' evaluating,' 'will,' 'until,' 'to build,' 'evolve,' 'launch,' 'continued,' 'continues,' 'to progress,' 'may,' 'retaining,' 'remains,' 'believe,' 'including,' 'can,' 'to create,' 'to find,' 'estimated,' 'impact,' 'ongoing,' 'submissions,' 'focus,' 'launches,' 'launch investments,' 'innovation,' 'potential,' 'guidance,' 'commitment,' 'pipeline,' 'aims,' 'momentum,' 'could,' 'would,' 'launched,' 'on track,' 'growing,' 'progressing,' 'expanding,' 'pending,' 'strongly,' 'priority,' 'filings,' 'outlook,' 'unforeseen,' 'forecast,' 'prevail,' 'enter,' 'to improve,' 'transformative,' 'innovative,' 'inventive,' 'manageable disruptions,' 'expect,' 'planned,' 'working,' 'monitoring,' 'anticipated,' 'continuously,' 'on track,' or similar expressions, or by express or implied discussions regarding potential new products, potential new indications for existing products, potential product launches, or regarding potential future revenues from any such products; or regarding our estimates of the impact of past and future COVID-19 related forward purchasing on sales and on our performance; or regarding the impact of the COVID-19 pandemic on clinical trials, and research and development timelines; or regarding potential future, pending or announced transactions; regarding potential future sales or earnings of the Group or any of its divisions; or by discussions of strategy, plans, expectations or intentions; or regarding the Group's liquidity or cash flow positions and its ability to meet its ongoing financial obligations and operational needs; or regarding efforts to provide a not-for-profit portfolio of medicines for symptomatic treatment of COVID-19. Such forward-looking statements are based on the current beliefs and expectations of management regarding future events, and are subject to significant known and unknown risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking statements. You should not place undue reliance on these statements. In particular, our expectations could be affected by, among other things: liquidity or cash flow disruptions affecting our ability to meet our ongoing financial obligations and to support our ongoing business activities; the impact of the COVID-19 pandemic on enrollment in, initiation and completion of our clinical trials in the future, and research and development timelines; the impact of a partial or complete failure of the return to normal global healthcare systems including prescription dynamics, particularly ophthalmology, in the second half of 2020; global trends toward healthcare cost containment, including ongoing government, payer and general public pricing and reimbursement pressures and requirements for increased pricing transparency; uncertainties regarding potential significant breaches of data security or data privacy, or disruptions of our information technology systems; regulatory actions or delays or government regulation generally, including potential regulatory actions or delays with respect to the development of the products described in this press release; the potential that the strategic benefits, synergies or opportunities expected from the transactions described, may not be realized or may be more difficult or take longer to realize than expected; the uncertainties in the research and development of new healthcare products, including clinical trial results and additional analysis of existing clinical data; our ability to obtain or maintain proprietary intellectual property protection, including the ultimate extent of the impact on Novartis of the loss of patent protection and exclusivity on key products that commenced in prior years and is expected to continue this year; safety, quality, data integrity, or manufacturing issues; uncertainties involved in the development or adoption of potentially transformational technologies and business models; uncertainties regarding actual or potential legal proceedings, investigations or disputes; our performance on environmental, social and governance measures; general political, economic and business conditions, including the effects of and efforts to mitigate pandemic diseases such as COVID-19; uncertainties regarding future global exchange rates; uncertainties regarding future demand for our products and other risks and factors referred to in Novartis AG's current Form 20-F on file with the US Securities and Exchange Commission. Novartis is providing the information in this press release as of this date and does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise.

About Novartis

Novartis is reimagining medicine to improve and extend people's lives. As a leading global medicines company, we use innovative science and digital technologies to create transformative treatments in areas of great medical need. In our quest to find new medicines, we consistently rank among the world's top companies investing in research and development. Novartis products reach nearly 800 million people globally and we are finding innovative ways to expand access to our latest treatments. About 110,000 people of more than 145 nationalities work at Novartis around the world.

Contact:

Antonio Ligi

Tel: +41 61 324 1374

Email: antonio.ligi@novartis.com

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