Replies to post #76460 on Biotech Values

[DewDiligence]

High-difficulty quiz: Who was the largest end-user buyer of NVS’ drugs during 1Q09? (An end user is a party that does not resell.)

[DewDiligence]

How NVS’ Operating Income Was Affected by FX



If the whole world used the same currency, NVS’ 1Q09 operating income would’ve grown by 5% relative to 1Q08. But currency transactions reduced operating income by 7% and currency translations reduced operating income by an additional 4%, resulting in a negative 6% year-over-year change in operating income as reported.

[srsmgja]

<< FTY720, a novel oral development therapy for MS, is on track for first submissions bt the end of 2009.>>


First submissions ?? Dew, can you help me with this statement.

As you had explained some months ago, FTY720 was to be filed based on FREEDOM 1 trial results and supplemented by safety data from FREEDOM II. Freedom II just finished enrollment, so the full efficacy and SAFETY data will not be available until mid-2011.

Any comments? Is this something new, or am I just mistaken in my reading of the news release?

[genisi]

Novartis eyes blockbuster sales for new lung drug

http://www.reuters.com/article/rbssHealthcareNews/idUSLL32522520090521

* All doses of QAB149 met main target in late stage trials

* Showed significant improvement over two approved medicines

* Development head says could be a billion-dollar seller

By Sam Cage

ZURICH, May 21 (Reuters) - A new medicine from Novartis AG (NOVN.VX: Quote, Profile, Research, Stock Buzz) significantly improved lung function when compared with two established respiratory drugs in late stage clinical tests, boosting hopes it could be a $1 billion-a-year seller.

The drug, known as QAB149, is being reviewed for approval in the European Union and the United States. Trevor Mundel, head of development at Novartis Pharma, said the drug could be on the market next year and has the potential to be a big seller.

"I think QAB becomes a very substantial opportunity," Mundel told Reuters. "I think heading towards a blockbuster."

Blockbusters are defined in the pharmaceuticals industry as products with annual sales of $1 billion or more.

All doses of once-daily QAB149 met their main target in Phase III trials for treating chronic obstructive pulmonary disease (COPD), or "smoker's lung", the Swiss drugmaker said on Thursday.

The medicine showed significant improvements over bronchodilators formoterol and tiotropium and significantly improved lung function from the first day of therapy to up to one year of treatment, Novartis said.

Formoterol is marketed under various trade names by companies including Novartis, Schering-Plough Corp (SGP.N: Quote, Profile, Research, Stock Buzz), and AstraZeneca Plc (AZN.L: Quote, Profile, Research, Stock Buzz). Tiotropium is the generic name for Spiriva, marketed by Pfizer Inc (PFE.N: Quote, Profile, Research, Stock Buzz) and Boehringer Ingelheim.

Novartis is planning to use QAB149 both on its own and as the base of combination treatments with other lung medicines.

One such combination product is QVA149 -- a mix of QAB149 and Vectura Group Plc's (VEC.L: Quote, Profile, Research, Stock Buzz) NVA237 -- which is expected to enter Phase III clinical trials in the fourth quarter.

Another is QMF149, which combines QAB149 and Schering-Plough's mometasone, for which Novartis assumed worldwide rights in a deal announced earlier this week.

"Novartis has a growing respiratory pipeline, which we believe has not been a key investor focus ... QAB149 is the cornerstone for a large number of potentially valuable future combinations," analysts at Citigroup said in a research note.

Piper Jaffray analysts said the latest good clinical data boded well for QVA149 and Vectura's partnership with Novartis. Shares in Vectura rose 2.6 percent in early trade.

[genisi]

Novartis Chief May Waive Chance to Buy Alcon After Share Slump

http://www.bloomberg.com/apps/news?pid=20601202&sid=aF3SYV_NKC8w&refer=healthcare

By Eva von Schaper

June 3 (Bloomberg) -- Novartis AG may pass on a chance to buy a majority stake in eye-care company Alcon Inc. for $28.2 billion after Alcon shares slumped, Chief Executive Officer Daniel Vasella said.

Novartis last year acquired 25 percent of Alcon from Nestle SA for $143.18 a share, or $11 billion. Under the agreement, Novartis can purchase another 52 percent between January 2010 and July 2011 for $181 a share. Alcon has fallen 25 percent since Nestle and Novartis announced the deal on April 7, 2008, closing yesterday on the New York Stock Exchange at $111.45.

Buying Alcon would help Basel, Switzerland-based Novartis reduce its reliance on pharmaceuticals at a time when its biggest-selling drugs, the hypertension treatment Diovan and the cancer drug Gleevec, are set to lose patent protection. Still, completing the purchase would require the drugmaker to pay a 62 percent premium over Alcon’s current price.

“You can calculate the likelihood of that happening,” Vasella, said in a May 28 interview in his Basel office. “From the point of the fundamentals, of the fit of the business, of the strategy, all that has not changed, but you cannot look at that in isolation. It is in a context of financial terms. I hope that it can be done, but obviously there are also significant uncertainties.”

Novartis may still end up buying the Alcon stake. Nestle can require Novartis to buy the shares at a 20.5 percent premium to Alcon’s stock price when the option is exercised, up to a maximum of $181. A Nestle spokeswoman declined to comment on whether it plans to exercise that option. The remaining 23 percent of Alcon, the world’s largest eye-care products company, is publicly traded.

Vasella, 55, also said that two personnel moves in the past seven months -- elevating Joerg Reinhardt to chief operating officer and hiring Jonathan Symonds as chief financial officer - - will give the board options in planning for Vasella’s successor.

Alcon’s Stock

Alcon, based in Hunenberg, Switzerland, makes Opti-Free contact-lens disinfectants, treatments for eye infections and glaucoma, and machines used in cataract surgery.

In past years, Novartis reduced its dependence on prescription medicines by developing generic drugs and expanding its vaccine unit by acquiring Chiron Corp. Vasella repeated that he’s looking for acquisitions to aid growth.

“If we can acquire now at a decent price then we should,” he said. Acquisitions “could be biotechs, could be generics could be vaccines. If we can make the case that it adds value more than cash, we would do it.”

Last month, Novartis agreed to buy Ebewe Pharma’s injectable-drug unit for $1.2 billion in cash to gain generic copies of cancer treatments, including chemotherapy. In February, it said it will pay Portola Pharmaceuticals Inc. as much as $575 million for the global rights to a blood thinner that could challenge Bristol-Myers Squibb Co.’s and Sanofi- Aventis SA’s Plavix.

Smaller Deals

Novartis, along with GlaxoSmithKline Plc and AstraZeneca Plc in the U.K. and France’s Sanofi, has said it prefers smaller deals to megamergers. This year, Pfizer Inc. agreed to acquire Wyeth for $63.6 billion, Merck & Co. said it will pay about $46 billion for Schering-Plough Corp. and Roche Holding AG purchased the rest of Genentech Inc. for $46.8 billion.

“The question is: why do you consider big transactions, and I think the worst reason is because it is fashion,” the Novartis chief executive said.

In October, Vasella shook up top management, replacing the heads of three of four business units. He moved Reinhardt from head of the vaccines unit into the new position of chief operating officer, sharing leadership duties with Vasella. Last month, the company hired Symonds, a former AstraZeneca executive-turned investment banker.

While Vasella declined to say how long he planned to stay in his job, he said succession played a role in both moves.

“Succession planning is not an option, it’s a must,” Vasella said. “You don’t want to be in front of a situation where you have one choice. One choice is no choice.”

[genisi]

Novartis moves cancer drug into new lymphoma study

http://www.reuters.com/article/rbssHealthcareNews/idUSL838109420090608

* Cut tumour size by 50 pct or more in mid-stage trial

* Started late-stage trial in lymphoma

* Seen as one of Novartis' most important new drugs

* Shares rise 1.1 pct

By Sam Cage

ZURICH, June 8 (Reuters) - Novartis AG's (NOVN.VX: Quote, Profile, Research, Stock Buzz) Afinitor medicine cut tumour size by 50 percent or more in a third of patients with lymphoma in a mid-stage clinical trial, the Swiss drugmaker said on Monday.

Novartis said it had started a late-stage trial to evaluate Afinitor's potential to extend disease-free survival in patients with diffuse large B-cell lymphoma (DLBCL).

The daily oral treatment Afinitor is one of the Swiss group's most important new drugs and is being tested for use against several different types of cancer, which could help it achieve sales of more than $1 billion annually.

Novartis shares rose 1.1 percent to 43.24 Swiss francs by 0809 GMT, compared with a 0.2 percent drop in the European health care sector .

The current gold standard treatment against DLBCL is Rituxan, made by Novartis' Swiss rival Roche Holding AG (ROG.VX: Quote, Profile, Research, Stock Buzz), whose stock was up 0.3 percent.

Afinitor works by blocking a protein known as mTOR and disrupting the growth, division and metabolism of cancer cells and is a key plank of Novartis' strategy to expand in cancer drugs.

The U.S. Food and Drug Administration approved Afinitor earlier this year for use in advanced kidney cancer and European regulators have also recommended it. Novartis expects a filing for use in neuroendocrine tumours within the next year.

Vontobel analyst Andrew Weiss sees peak sales at $500 million in advanced kidney cancer but has not yet included possible revenue from other indications, which could be further positives if the drug reaches the market.

The mid stage trial assessed the drug in patients with relapsed non-Hodgkin's lymphoma and Hodgkin's disease, a variety of cancers which affect the immune system. Afinitor significantly shrunk tumours in 33 percent of patients, data which prompted Novartis to start the late stage study, the company said.

[DewDiligence]

NVS Reports 2Q09 Results

[NVS, more than any other Big Pharma, was hurt by the strong dollar in 2Q09 relative to 2Q08. Unlike GSK and SNY, NVS reports its financial results in dollars. Moreover, NVS earns a high proportion of its revenues outside of US while incurring a high proportion of its costs in the US (worldwide R&D headquarters are in Cambridge, Massachusetts). NVS’ 2Q09 sales increased 8% vs 2Q08 in local currencies but declined 2% in dollars. 2Q08 net income also increased 8% in local currencies, but the strong dollar relative to 2Q08 had a negative effect of 12 percentage points (5% due to transactions and 7% to translations), producing a 4% year-over-year decline in dollars.

In local currencies, sales growth of the various products was mostly in-line with expectations. Notably, Lucentis sales grew 42% (!) year-over-year in local currencies (+21% in dollars) to an annualized rate of $1.2B—all from outside the US, where NVS has the commercial rights.

For financial details beyond what’s in this PR, including quarterly sales of each of NVS’ top-20 drugs, please see: http://hugin.info/134323/R/1307495/301013.pdf . Presentation slides for today’s CC can be found at: http://www.novartis.com/downloads/investors/sales-results/H1-2009-IR-presentation.pdf .]

http://www.novartis.com/newsroom/media-releases/en/2009/1329090.shtml

›July 16, 2009 06:59 Central European Time

Novartis delivers strong operational performance in the first half of 2009 driven by sustained Pharmaceuticals innovation

* Pharmaceuticals an industry growth leader: Net sales up 12% (local currencies) in first half of 2009 on contributions from new products and expansion in all regions

* R&D maintains momentum: Anti-cancer therapy Afinitor introduced in the US, awaiting EU approval; new biologic Ilaris and OTC brand Prevacid 24HR gain US approvals; clinical trials set to start in July for A(H1N1) pandemic flu vaccine

* H1 2009 operating results advance well, but impacted negatively by currencies:

o Net sales of USD 20.3 billion grow 8% in local currencies (lc), decline 2% in US dollars

o Operating income of USD 4.7 billion up 11% in constant currencies and excluding exceptional items in both periods, down 5% in US dollars

o Free cash flow before dividends advances 33% to USD 3.4 billion

* Net income of USD 4.0 billion falls 12%, includes negative currency impact and Alcon financing costs

o Basic EPS: USD 1.76 in first half of 2009 vs. USD 2.01 in 2008 period

* Novartis reaffirms expectations for strong operational performance in 2009 and record earnings in constant currencies

Basel, July 16, 2009 - Commenting on the results, Dr. Daniel Vasella, Chairman and CEO of Novartis, said: "I am pleased that our pharmaceuticals business continues to deliver double-digit underlying growth, driven by the strong momentum of our recently launched products. Our pipeline continues to deliver a steady stream of innovative medicines. In the first six months of 2009 we have introduced our new anti-cancer therapy Afinitor in the US and gained first approval for llaris as a new biologic therapy for auto-inflammatory diseases. We are advancing well in our efforts to rapidly produce and commercialize a vaccine against the H1N1 virus, with clinical trials set to begin in July. We continue to expect record underlying results in constant currencies based on innovation and productivity initiatives."

OVERVIEW

First half

Pharmaceuticals delivered strong and sustained growth to lead the Group's healthcare portfolio. The division's net sales rose 12% in local currencies (+3% in US dollars) thanks to rapid expansion of recently launched products such as Lucentis, Exforge, Exjade, Exelon Patch, Reclast/Aclasta, Tasigna, Tekturna/Rasilez and Galvus and growth in all therapeutic franchises and regions. R&D highlights included the US launch of the anti-cancer medicine Afinitor, which is awaiting EU approval. US approvals were also granted for the biologic therapy Ilaris for some auto-inflammatory conditions and the OTC product Prevacid 24HR.

Challenging global economic conditions dampened growth in Consumer Health (+1% lc), while Sandoz (+4% lc) achieved greatly improved performances in many key markets outside the US.

Group net sales rose 8% in local currencies, but declined 2% in US dollars to USD 20.3 billion. Solid operational gains were offset by 10 percentage points from the negative impact of the stronger US dollar. Higher sales volumes contributed seven percentage points over the 2008 period, while net price changes provided one percentage point.

Operating income fell 5% to USD 4.7 billion, but rose 11% when adjusted for the impact of currency movements, exceptional items and the amortization of intangible assets in both periods. Significant productivity gains in production, marketing and selling, and administrative areas helped to finance R&D projects involving many novel and potentially first-in-class compounds as well as rapid expansion in high-growth markets.

Net income fell 12% to USD 4.0 billion, also impacted by financing costs for the 25% Alcon stake acquired in mid-2008. Basic earnings per share (EPS) declined to USD 1.76 in the first half of 2009 from USD 2.01 in the year-ago period.

Second quarter

Net sales rose 8% in local currencies, but fell 2% to USD 10.5 billion from the loss of 10 percentage points of growth to currency movements. The dynamic business expansion in Pharmaceuticals (+11% lc) led the performance ahead of Sandoz (+4% lc) and Consumer Health (+2% lc). Vaccines and Diagnostics (-15% lc) was hampered by comparison to the prior year that included deliveries of H5N1 pandemic flu vaccines.

Operating income fell 4% to USD 2.4 billion, but rose 13% when adjusted for the impact of adverse currency movements, exceptional items and the amortization of intangible assets in both periods.

Net income fell 10% to USD 2.0 billion, affected by currency changes and higher financing costs, which included a EUR 1.5 billion bond issued in the second quarter of 2009. Basic earnings per share (EPS) declined to USD 0.90 from USD 0.99 in the year-ago period.

Delivering sustainable growth by meeting broad healthcare needs

Results in the first half of 2009 confirm the Group's strong operational performance as Novartis continues to focus on delivering long-term sustainable growth from a portfolio that addresses broad healthcare needs. The Group is selectively strengthening its businesses, stepping up investments in innovation and expanding in high-growth markets while improving organizational efficiency.

In Pharmaceuticals, ongoing dynamic growth of recently launched products (+91% lc) provided USD 2.0 billion of net sales in the first half of 2009, which represented 15% of net sales compared to 9% in the first half of 2008. These contributions have made Novartis one of the fastest-growing pharmaceutical companies in 2009 in terms of local currency net sales. New products emerging from the R&D pipeline, led by the anti-cancer medicine Afinitor, are expected to further support the expansion underway in all therapeutic areas. Top emerging markets also continue to deliver robust growth.

Vaccines and Diagnostics is making good progress in creating a vaccine against the new strain of influenza A(H1N1). Novartis has started large-scale antigen production at all sites in Europe, using both traditional egg-based manufacturing as well as its faster cell-based vaccine production capacity to maximize the potential vaccine supply. Using cell-culture technology, first batches have been successfully produced for both the wild virus strain and the "reassortant seed" modified virus recommended by the WHO and health authorities. Clinical trials will start in July for this vaccine. Novartis has secured several orders for H1N1 vaccines amid discussions with more than 35 governments. The US government has now awarded Novartis two contracts totaling USD 979 million for future purchase of H1N1 bulk vaccine and the Group's proprietary MF59 adjuvant, while contracts have also been received from other countries.

Sandoz, a world leader in generics, is growing rapidly in selected key markets and taking actions to broaden its product portfolio. Sandoz agreed in May to acquire the generic oncology injectables business of EBEWE Pharma for EUR 925 million (USD 1.3 billion), which will create a new global growth platform and improve access to oncology medicines. Sandoz is also addressing FDA concerns about the Wilson manufacturing site in the US. An FDA inspection is anticipated for the 2009 third quarter.

Consumer Health continues to focus on maximizing the value of its trusted brands and expanding geographically, led by sustained growth in CIBA Vision from the rollout of new contact lens products. In the second quarter of 2009, Prevacid 24HR earned US regulatory approval as the first OTC (over-the-counter) version of this proton pump inhibitor for frequent heartburn; launch in the US is set for later in 2009.

Expansion in targeted high-growth markets continues. Net sales in the top six emerging markets rose 20% lc to USD 1.8 billion in the first half of 2009, with only limited signs to date of an adverse impact from global economic conditions.

Forward, an initiative for greater productivity, increased efficiency and speed, is progressing rapidly ahead of schedule with USD 631 million of incremental savings in the first half of 2009, which are being partially reinvested to bolster growth. Forward has now achieved cumulative cost savings of USD 1.7 billion and exceeded the 2010 goal of USD 1.6 billion (compared to 2007) 18 months ahead of plan.

Group outlook

(Barring any unforeseen events)

Novartis reaffirms expectations for strong underlying momentum in 2009, with Group net sales growing at a mid-single-digit rate in local currencies. Pharmaceuticals net sales are now expected to expand at a minimum high-single-digit rate in 2009, also in local currencies. Underlying growth in operating and net income to record levels in 2009, however, could be more than offset in reported results by currency-related losses.

BUSINESS REVIEW

First half

Net sales

Pharmaceuticals: USD 13.5 billion (+3%, +12% lc)

Dynamic local currency growth driven by double-digit advances in all regions, particularly Europe (USD 4.9 billion, +12% lc) and the US (USD 4.6 billion, +11%), and also Japan (USD 1.5 billion, +10% lc) following the launches of four newly approved medicines in early 2009. The six targeted emerging markets of Brazil, China, India, Russia, South Korea and Turkey (USD 1.2 billion, +22% lc) maintained a rapid expansion pace.

New launches and the rollout of new products - led by Lucentis, Exforge, Exjade, Exelon Patch, Reclast/Aclasta and Tekturna/Rasilez - contributed USD 2.0 billion of net sales in the 2009 period. This represented 15% of division net sales compared to 9% in the first half of 2008. Product launches also contributed eight percentage points of the division's local currency net sales growth of 12% lc.

All therapeutic franchises expanded at double-digit rates. Oncology (USD 4.2 billion, +15% lc), the largest franchise, kept up a strong pace thanks to Gleevec/Glivec (USD 1.9 billion, +15% lc), Femara (USD 596 million, +15% lc) and Exjade (USD 295 million, +35% lc). The strategic Cardiovascular franchise (USD 3.6 billion, +14% lc) showed solid growth, helped by the new high blood pressure medicines Exforge (USD 304 million) and Tekturna/Rasilez (USD 119 million) that contributed more than seven percentage points of incremental growth. Diovan (USD 2.9 billion, +6% lc) showed double-digit gains in Japan and solid advances in Europe and the US. Neuroscience and Ophthalmics (USD 2.1 billion, +11% lc) was driven by Lucentis (USD 523 million, +42% lc) and Exelon Patch (USD 214 million) as well as initial contributions from Extavia (USD 12 million).

Vaccines and Diagnostics: USD 494 million (-18%, -9% lc)

Higher deliveries of seasonal flu vaccines to the Southern Hemisphere as well as for pediatric vaccine components and rabies vaccines in the 2009 period more than offset a decline in TBE (tick-borne encephalitis) vaccines, which reflected markets reaching the end of the catch-up phase in central Europe. The absence of H5N1 pandemic flu vaccine sales weighed on the 2009 performance compared to the 2008 period.

Sandoz: USD 3.5 billion (-9%, +4% lc)

Solid sales growth in local currencies was seen in all regions outside the US, led by Central and Eastern Europe (+12% lc) and Asia-Pacific (+26% lc). Also contributing were the three approved Sandoz biosimilars (+62% lc). Market share gains were seen in Germany (+3% lc) in a declining market. Sales in the US (-1% lc) fell mostly due to price erosion as well as limited new product launches and the impact of ongoing lost sales from remediation of the Wilson manufacturing site.

Consumer Health: USD 2.7 billion (-9%, +1% lc)

CIBA Vision benefited from solid expansion and market share gains for new contact lens products. Animal Health was largely unchanged as the farm animal business recovered from 2008, but reduced consumer spending affected the companion animal business. Despite adverse global market conditions, OTC net sales (lc) were in line with the 2008 period.

Operating income

Pharmaceuticals: USD 4.3 billion (+0%)

Reported operating income was affected by the negative impact of currencies (-11 percentage points) and lower favorable exceptional items (-4 percentage points). Excluding these effects, underlying operating income advanced 15% thanks to the double-digit sales expansion and productivity savings, outpacing the 12% lc net sales expansion. Adjusted for intangible asset charges and exceptional items, the operating margin was 33.0% in the 2009 period compared to 32.6% in 2008. Cost of Goods Sold was steady at 16.7% of net sales, while other revenues fell 0.9 percentage points following the end of Betaseron® royalty receipts in late 2008. R&D investments rose to 20.5% of net sales from 20.2% in the 2008 period. Marketing & Sales expenses fell to 29.6% in 2009 from 30.4% in the first half of 2008. Productivity gains of USD 458 million enabled both underlying margin improvements and significant investments to support launches and hypergrowth plans in Oncology and targeted emerging markets.

Vaccines and Diagnostics: USD -234 million

The adjusted operating loss, which excludes exceptional items and the amortization of intangible assets, rose to USD 35 million compared to a loss of USD 4 million in the year-ago period. Results for the 2009 period included a USD 45 million legal charge, while the 2008 first half included a USD 49 million exceptional gain for a diagnostics license fee.

Sandoz: USD 538 million (-9%)

Volume expansion in many key markets and ongoing productivity gains were more than offset by lower contributions from the US and negative currency movements of about 13 percentage points. Marketing & Sales and R&D both fell as a percentage of net sales despite continued expansion in growth markets and new product development. Cost of Goods Sold rose on changes in product mix due to a lack of major US product launches.

Consumer Health: USD 506 million (-11%)

In constant currencies, operating income improved 7% over the year-ago period on the strength of business expansion and supply chain productivity gains in CIBA Vision.

Corporate Income & Expense, net

The increase in net corporate expenses was due mainly to higher pension expenses.

Second quarter

Net sales

Pharmaceuticals: USD 7.1 billion (+3%, +11% lc)

Continuing the strong momentum of the 2009 first quarter, all regions showed double-digit underlying net sales growth. Europe (USD 2.6 billion, +12% lc), the division's largest region, had strong incremental growth from recently launched products. The US (USD 2.4 billion, +9%) also benefited from expansion of the rejuvenating product portfolio. In addition, Canada and Latin America (USD 607 million, +12% lc) delivered strong performances. The six targeted emerging markets of Brazil, China, India, Russia, South Korea and Turkey (USD 651 million, +25% lc) all advanced rapidly and were led by Russia, Turkey and China.

Recently launched products delivered USD 1.1 billion of net sales in the second quarter of 2009, representing 16% of the division's net sales compared to 10% in the 2008 quarter. These new products also provided eight percentage points of the 11% lc net sales growth in the 2009 period.

All therapeutic franchises delivered improvements in underlying sales, led by Oncology (USD 2.2 billion, +17% lc) benefiting from broad advances and the US launch of Afinitor. The strategic Cardiovascular franchise (USD 1.9 billion, +14% lc) was helped by Exforge and Tekturna/Rasilez. Neuroscience and Ophthalmics (USD 1.1 billion, +10% lc) saw rapid gains for Lucentis and Exelon Patch.

Vaccines and Diagnostics: USD 247 million (-23%, -15% lc)

Lower sales of TBE (tick-borne encephalitis) vaccines and the lack of H5N1 vaccine sales led to the decline. No sales were booked in the 2009 quarter for initial orders of H1N1 pandemic flu vaccines.

Sandoz: USD 1.8 billion (-9%, +4% lc)

Maintaining the pace of the 2009 first quarter, top markets achieved strong performances and were led by Asia-Pacific (+24% lc), Central and Eastern Europe (+6% lc) and Germany (+4% lc). The US (+2% lc) returned to year-on-year quarterly growth for the first time since the fourth quarter of 2007.

Consumer Health: USD 1.4 billion (-8%, +2% lc)

New contact lens product launches underpinned local currency growth and market share gains for CIBA Vision. The Animal Health farm business and OTC expanded in North America ahead of their respective markets, while the overall businesses continued to suffer from reduced consumer spending and wholesaler destocking due to credit pressures.

Operating income

Pharmaceuticals: USD 2.2 billion (+2%)

Operating income improved while absorbing the negative impact of currencies (-10 percentage points) and reduced favorable exceptional items (-5 percentage points). Excluding these effects, underlying operating income advanced 17% thanks to the strong business expansion and increased productivity gains, outpacing the 11% lc net sales growth. The adjusted operating margin rose 1.1 percentage points to 32.7% of net sales in 2009 compared to 31.6% in 2008. The end of Betaseron® royalty receipts in late 2008 led to a decline of 0.9 percentage points in other revenues. Cost of Goods Sold improved by 0.7 percentage points to 16.6% of net sales mainly from product mix. R&D investments rose 0.7 percentage points to 20.3% of net sales to support late-stage projects and biologics. Marketing & Sales fell 0.8 percentage points to 29.6% of net sales. Productivity savings enabled both underlying margin improvements and significant investments to bolster growth.

Vaccines and Diagnostics: USD -167 million

Excluding exceptional items and amortization of intangible assets, the adjusted operating loss was USD 46 million in the second quarter of 2009 compared to adjusted operating income of USD 16 million in the 2008 period.

Sandoz: USD 247 million (+0%)

The operating margin rose 1.3 percentage points to 13.9% from the 2008 quarter as focused efforts on productivity gains, including reductions in Cost of Goods Sold and total function costs, helped maintain profitability at the prior-year level despite negative currency movements (-12 percentage points) and lower contributions from the US.

Consumer Health: USD 271 million (-11%)

Significant R&D investments across all businesses were financed by productivity gains in marketing, general and administrative expenses. Operating income grew 5% over the year-ago period in constant currencies.

Corporate Income & Expense, net

Net corporate expenses in the second quarter of 2009, which were slightly higher than the year-ago period, included higher pension expenses.

FINANCIAL REVIEW

Income from associated companies

The decline in income from associated companies in the first half of 2009 resulted mainly from reduced contributions from the Roche stake, which included a negative adjustment of USD 40 million since Roche's reported 2008 results were lower than anticipated. However, income from associated companies rose 4% in the second quarter of 2009 to USD 124 million on increased contributions from both the Roche and Alcon investments.

Financial result, net

Average net debt in the 2009 first half amounted to USD 2.3 billion compared to average net liquidity of USD 5.9 billion in 2008, reflecting the mid-2008 purchase of the Alcon stake. As a result, and also due to currency losses and lower financial yields, financial income in the first half fell by USD 190 million to USD 43 million. Also in the first half of 2009, interest expense rose to USD 222 million, which included an additional expense of USD 136 million in the 2009 period for the US dollar and Euro bonds issued in the first half of 2009 and the Swiss franc bonds issued in mid-2008. In the second quarter of 2009, financial income was up 7% over the year-ago period, but interest expenses more than doubled due to the issuance of debt.

Taxes

The tax rate (taxes as a percentage of pre-tax income) was 15.2% in the first half of 2009 compared to 14.0% in the year-ago period based on a reassessment of the Group's anticipated full-year tax rate. This resulted in a substantial increase in the tax rate to 16.3% for the second quarter of 2009 compared to 13.0% in the year-ago period.

Net income from continuing operations

Among factors for the 12% decline in net income to USD 4.0 billion in the first half of 2009 were reduced contributions from the operating businesses and associated companies as well as higher financial charges. These same factors also weighed on net income in the second quarter of 2009, which fell 10% to USD 2.0 billion.

Basic earnings per share

Basic earnings per share (EPS) from continuing operations were USD 1.76 per share in the first half of 2009, down from USD 2.01 in the 2008 period, in line with the decline in net income. For the second quarter, basic EPS also fell in line with net income, declining 9% to USD 0.90 per share from USD 0.99 in the prior-year quarter.

Balance sheet

Total assets increased to USD 84.3 billion at the end of the first half of 2009 compared to USD 78.3 billion at the end of 2008, mainly reflecting proceeds from recent bond issues that are held as cash and marketable securities.

The Group's equity was largely unchanged at USD 50.5 billion at the end of the first half of 2009 compared to USD 50.4 billion at the end of 2008 as net income of USD 4.0 billion in the 2009 period was largely offset by the dividend payment in the 2009 first quarter amounting to USD 3.9 billion, an 18% increase in US dollars from the 2008 dividend payment of USD 3.3 billion.

The Group's debt/equity ratio rose to 0.27:1 at the end of the first half of 2009 from 0.15:1 at the end of 2008, reflecting the successful issuance of a USD 5 billion bond (two tranches) in the US in the first quarter and the launch of a EUR 1.5 billion bond in the second quarter. At the end of the first half of 2009, financial debt of USD 13.9 billion consisted of USD 4.7 billion in current and USD 9.2 billion in non-current liabilities.

Overall liquidity increased to USD 11.8 billion at June 30, 2009, from USD 6.1 billion at the end of 2008. Taking into account the debt raised in 2009, net debt increased to USD 2.1 billion at June 30, 2009, from USD 1.2 billion at December 31, 2008, and net liquidity of USD 5.5 billion at June 30, 2008.

Credit agencies maintained their ratings of Novartis debt during the first half of 2009. Moody's rated the Group as Aa2 for long-term maturities and P-1 for short-term maturities and Standard & Poor's had a rating of AA- and A-1+, for long-term and short-term maturities, respectively. Fitch had a long-term rating of AA and a short-term rating of F1+. These agencies maintained a "stable" outlook.

Cash flow

Cash flow from operating activities from continuing operations rose 29% to USD 4.6 billion in the first half of 2009 compared to the year-ago period as a result of improved working capital management as well as lower financial and tax payments in the first six months of 2009 compared to the prior-year period. Operating cash flow in the first half of 2008 also included restructuring payments for the Forward productivity initiative.

A substantial portion of proceeds from the US dollar and euro bond issues in the first half of 2009 were reinvested into marketable securities, resulting in an outflow of USD 5.6 billion in cash flow from investing activities in the first half of 2009 compared to an inflow of USD 4.5 billion in the year-ago period. Cash inflows from financing activities were a net USD 2.5 billion in the 2009 first half, composed of a combined USD 7.1 billion of proceeds from the bond issues that were partially offset by the dividend payment for 2008 of USD 3.9 billion and other items totaling USD 0.7 billion.

PHARMACEUTICALS PRODUCT REVIEW

Note: Net sales growth data refer to year-to-date 2009 performance in local currencies.

Strategic Cardiovascular franchise

The strategic Cardiovascular franchise (USD 3.6 billion, +14% lc) showed solid growth on expansion of the high blood pressure medicines Exforge and Tekturna/Rasilez, providing more than seven percentage points of franchise net sales gains in the 2009 first half. Diovan underpinned the franchise with rising contributions in all markets, leading to overall gains in the US and global antihypertension market segments.

Diovan (USD 2.9 billion, +6% lc) benefited from double-digit growth in Japan, which now accounts for about 20% of net sales, and a solid performance in Europe ahead of the anticipated entry of generic versions as early as the second half of 2009 of losartan, another medicine in the angiotensin receptor blockers (ARB) segment. In the US, Diovan (+5%) continues to grow solidly despite generic versions of rival high blood pressure medicines in other classes.

Exforge (USD 304 million +96% lc), a single pill containing the angiotensin receptor blocker Diovan (valsartan) and the calcium channel blocker amlodipine, has been steadily outpacing the high blood pressure medicine market due to its differentiated efficacy profile. Exforge HCT, which includes the addition of a diuretic to this combination, received US regulatory approval in April 2009 as the only high blood pressure therapy with three medicines in one pill.

Tekturna/Rasilez (USD 119 million, +117% lc), the first new type of high blood pressure medicine in more than a decade, has accelerated its growth pace thanks to an increasing body of data affirming its ability to reduce blood pressure for more than 24 hours, its potential benefits for organ protection, and its consistent superiority in clinical trials over ramipril, a leading ACE inhibitor (another class of high blood pressure medicines). Data from the ASPIRE HIGHER outcomes program and various single-pill combinations with other medicines are expected to drive future growth. Rasilez HCT, a single-pill combination with a diuretic, has been launched in Europe after approval in January 2009. This combination is available in the US as Tekturna HCT. A single-pill combination with valsartan was also submitted for European approval in June 2009, matching a US submission in late 2008. Another combination with amlodipine is on track for US and EU submissions in 2009.

Oncology

Gleevec/Glivec (USD 1.9 billion, +15% lc), a targeted therapy for certain forms of chronic myeloid leukemia (CML) and gastrointestinal stromal tumors (GIST), has achieved sustained double-digit growth based on its leadership position in treating these cancers backed by new clinical data and regulatory approvals. Glivec received European regulatory approval in May 2009 as a post-surgery (adjuvant setting) therapy for GIST following Swiss (February 2009) and US (December 2008) approvals.

Tasigna (USD 88 million), a second-line therapy for patients with a form of chronic myeloid leukemia (CML) resistant or intolerant to prior therapy, including Gleevec/Glivec, has been expanding quickly in the US, Germany and the UK while also demonstrating potential to become a leading therapy for newly diagnosed CML patients. Phase II data at the European Hematology Association meeting in June demonstrated that patients treated with Tasigna at 12 months had rapid responses and a deep reduction in the amount of the abnormal protein that causes CML. Results from a Phase III trial comparing Tasigna and Gleevec/Glivec are expected in 2010. A first-line study in GIST began enrollment in March.

Zometa (USD 701 million, +10% lc), an intravenous bisphosphonate therapy for patients with cancer that has spread to the bones, has been growing due to improved compliance and use in existing indications. Also supporting the broad expansion have been landmark data first presented in 2008, and published in early 2009 in "The New England Journal of Medicine," that showed the significant anti-cancer benefit of Zometa in reducing the risk of cancer recurrence or death in premenopausal women with hormone-sensitive, early-stage breast cancer. Studies are underway to review the potential anti-cancer benefits of Zometa in other tumor types.

Femara (USD 596 million, +15% lc), an oral therapy for women with hormone-sensitive breast cancer, continued with strong growth in 2009 on the back of gains in the European initial post-surgery (adjuvant setting) segment. The entry of generic competition in some markets, however, had a modest impact on the positive performance.

Sandostatin (USD 539 million, +6% lc), for acromegaly and neuroendocrine tumors of the gastrointestinal tract and pancreas, benefited from increasing use of Sandostatin LAR, the once-monthly version that accounts for nearly 90% of net sales. Updated Phase III data presented at the American Society of Clinical Oncology (ASCO) meeting in May further demonstrated a significant delay in tumor progression in patients with metastatic neuroendocrine tumors of the midgut who were treated with Sandostatin LAR. These data formed the basis of the recent US National Comprehensive Cancer Network (NCCN) update on treatment guidelines for neuroendocrine tumors.

Exjade (USD 295 million, +35% lc), approved in more than 90 countries as the only once-daily oral therapy for transfusional iron overload, recently received regulatory approvals in Brazil, the US and Canada for a new dose of 40 mg/kg, which provides a new option for patients who require higher dose titration for iron chelation. This new dose was also approved in Switzerland in early 2009.

Afinitor (USD 12 million), an oral inhibitor of the mTOR pathway, was launched in the US after regulatory approval was granted in March as the first therapy for patients with advanced renal cell carcinoma (kidney cancer) after failure of treatment with sunitinib or sorafenib. European Union regulatory approval is anticipated soon, after the Committee for Medicinal Products (CHMP) issued a positive opinion in May supporting approval in renal cell carcinoma following progression on VEGF-targeted therapy. Afinitor is being studied in many cancer types: Phase III studies are underway in neuroendocrine tumors (NET), breast cancer, lymphoma and tuberous sclerosis complex (TSC), while Phase III trials are planned to be initiated in hepatocellular carcinoma (HCC) and gastric cancer. A Phase III trial in carcinoids (a type of NET) is ongoing and will continue through to final analysis, with regulatory submissions for this indication expected in 2010. Positive data have also recently been presented from early clinical studies in HCC and lymphoma. This product's active ingredient, everolimus, is the same as in the transplant therapy Certican.

Other Pharmaceuticals products

Lucentis (USD 523 million, +42% lc), a biotechnology eye therapy approved in more than 80 countries, generated ongoing dynamic growth in Europe, Latin America, Japan and key emerging markets based on its status as the only treatment proven to maintain and improve vision in patients with "wet" age-related macular degeneration, a leading cause of blindness in people over age 50. Genentech holds the US rights to this medicine.

Exelon/Exelon Patch (USD 436 million, +24% lc), a therapy for mild to moderate forms of Alzheimer's disease dementia and also dementia linked with Parkinson's disease, has seen dynamic growth in the US and Europe since the late 2007 launch of Exelon Patch, a novel skin patch, that accounts for about half of franchise net sales.

Reclast/Aclasta (USD 200 million, +105% lc), the first once-yearly infusion therapy for osteoporosis, has been fueled by increasing patient access to infusion centers in the US and Europe as well as a growing list of approved indications for use in a broad range of patients suffering from various types of this debilitating disease. Reclast/Aclasta, approved for five indications, gained additional US approval in May as the only therapy to prevent postmenopausal osteoporosis with convenient, less-frequent dosing, while European approval was granted in June for treatment of osteoporosis caused by steroid treatment in men and postmenopausal women, an indication already approved in the US.

Xolair (USD 140 million, +67% lc, Novartis sales), a biotechnology drug for moderate to severe persistent asthma in the US and allergic asthma in Europe, has grown strongly thanks to its approval in more than 60 countries, including the Japan launch in early 2009. Novartis co-promotes Xolair with Genentech in the US and shares a portion of operating income. Genentech's US sales were USD 277 million in the first half of 2009.

Galvus/Eucreas (USD 65 million), two oral treatments for type 2 diabetes, have grown strongly during the rollout since 2008 in many European, Latin American and Asia-Pacific markets. Galvus is approved in 60 countries, while Eucreas (a single-pill combination with the oral anti-diabetes medicine metformin) is now available in 21 countries.

Extavia (USD 12 million), for patients with some forms of multiple sclerosis (MS), has been prescribed for use by about 3,000 patients in Europe since the early 2009 launch that marks the entry of Novartis into this disease area. Extavia is the same medicinal product as Betaferon®/ Betaseron®, which is marketed by Bayer Schering. Novartis gained rights to its own branded version in agreements with Bayer Schering after Novartis fully acquired Chiron. Novartis expects to launch Extavia in the US in 2009.

R&D UPDATE

Pharmaceuticals

Ilaris (canakinumab, formerly ACZ885), a human antibody targeting IL-1 beta, received US regulatory approval in June as a new therapy to treat children as young as four years old and adults with CAPS (Cryopyrin-Associated Periodic Syndromes), a group of serious life-long auto-inflammatory diseases. Decisions are pending on regulatory submissions in several countries, including Europe, Canada and Switzerland. Data from a one-year Phase III trial published in "The New England Journal of Medicine" in June confirmed that Ilaris offered rapid and long-term clinical remission in CAPS patients. Studies are underway in other disease areas believed to involve IL-1 beta, including some forms of gout, Systemic Juvenile Idiopathic Arthritis (SJIA), Chronic Obstructive Pulmonary Disease (COPD) and type 2 diabetes.

Coartem (artemether/lumefantrine), the leading artemisinin-based combination treatment for malaria, received US regulatory approval in April. Novartis has provided more than 250 million Coartem treatments to date for public-sector use in malaria-endemic regions.

QAB149 (indacaterol), a bronchodilator in development for Chronic Obstructive Pulmonary Disease (COPD), has been shown in Phase III clinical trials to significantly improve lung function over the currently available treatments formoterol and tiotropium at three months of therapy. QAB149 also improved symptom control in COPD, a life-threatening lung condition affecting 210 million people worldwide. Further Phase III data will be presented at the European Respiratory Society meeting in September 2009. QAB149, which is expected to form the cornerstone of planned combination therapies in development against COPD, was submitted for US and European regulatory review in late 2008.

FTY720 (fingolimod), a novel oral development therapy for multiple sclerosis, showed continued low relapse rates after four years in patients with relapsing-remitting MS in an open-label Phase II extension study. The data, presented at the American Academy of Neurology (AAN) meeting in April, also showed no significant change in the safety profile from three to four years. Data at AAN from TRANSFORMS, a one-year Phase III trial against interferon beta-1a (Avonex®), showed 80-83% of MS patients given FTY720 were relapse-free for one year compared to 69% of patients treated with Avonex® (p<0.001), with a safety profile for FTY720 in line with previous experience. US and European regulatory submissions are expected by the end of 2009. Initial results of the Phase III placebo-controlled FREEDOMS trials are also expected in the fourth quarter of 2009.

Certican (everolimus), an oral inhibitor of the mTOR pathway, was submitted for US regulatory approval in June for use in kidney transplant patients. Results of a one-year study, which was undertaken in response to "approvable letters" from the FDA, achieved primary efficacy and renal function targets and were also consistent with experience seen in 70 countries - including in Europe - where this medicine has been approved. Everolimus is also the active ingredient in the anti-cancer therapy Afinitor, which has been approved in the US.

AGO178 (agomelatine), a once-daily investigational treatment for patients with major depression, will be studied in additional Phase III trials to further explore the benefit/risk and pharmacokinetic profile of this compound. A recent review of data from previous Phase III trials confirmed the known efficacy and safety profile of the drug. Submission for US regulatory approval, which had been anticipated in 2009, is now expected in 2012. The US rights to this compound were acquired in March 2006 from Servier.

Vaccines and Diagnostics

Menveo, which was submitted in 2008 for US regulatory approval as a new vaccine to protect against four common types of meningococcal meningitis in people age 11-55, has received a Complete Response letter from the FDA requesting additional information on the submission's clinical and CMC (Chemistry Manufacturing and Control) sections. No new clinical trials are required, and Novartis expects to respond to all questions fully in 2009. Menveo was also submitted in 2008 for regulatory approval in Europe for use in adolescents (from age 11) and adults. Clinical trials are underway in other age groups, including as young as from two months, to protect against the serogroups A, C, W-135 and Y found with this often-fatal bacterial infection.

Sandoz

Omnitrope, the pioneering biosimilar of the recombinant human growth hormone somatropin, has received regulatory approval as the first-ever biosimilar in Japan under the brand name Somatropin BS S.C. This approval paves the way for greater access to high-quality biopharmaceuticals in the world's second-largest pharmaceuticals market and comes about three months after Japanese authorities published guidelines for a biosimilar regulatory pathway, which is based on similar scientific principles already in place in the European Union. Sandoz pioneered the field of biosimilars with the approval and launch of Omnitrope in the US and Europe. Omnitrope was also approved in Canada in 2009. Sandoz is the only company with three approved biosimilars in Europe: Omnitrope, Binocrit (epoetin alfa) and Zarzio (filgrastim).

OTC

Prevacid 24HR (lansoprazole delayed-release capsules 15 mg), a once-daily proton pump inhibitor, received US regulatory approval in May as the first and only OTC (over-the-counter) version of this popular prescription medicine. The FDA granted three years of marketing exclusivity for the 15 mg OTC dose, meaning that no branded or private label competition is allowed before May 2012. Prevacid 24HR is expected to be available in the US later in 2009. Novartis gained the rights for OTC development and commercialization of Prevacid® from Takeda Pharmaceuticals North America, Inc.

About Novartis

Novartis provides healthcare solutions that address the evolving needs of patients and societies. Focused solely on healthcare, Novartis offers a diversified portfolio to best meet these needs: innovative medicines, cost-saving generic pharmaceuticals, preventive vaccines, diagnostic tools and consumer health products. Novartis is the only company with leading positions in these areas. In 2008, the Group's continuing operations achieved net sales of USD 41.5 billion and net income of USD 8.2 billion. Approximately USD 7.2 billion was invested in R&D activities throughout the Group. Headquartered in Basel, Switzerland, Novartis Group companies employ approximately 99,000 full-time-equivalent associates and operate in more than 140 countries around the world. For more information, please visit http://www.novartis.com.‹