Press Release: Novartis continues to deliver strong sales growth and core margin expansion in Q2; raises FY 2024 bottom-line guidance

Ad hoc announcement pursuant to Art. 53 LR

-- Q2 net sales grew +11% (cc1, +9% USD) with core operating income up +19%

(cc, +17% USD)

-- Sales growth driven by continued strong performance from Entresto

(+28% cc), Kesimpta (+65% cc), Cosentyx (+22% cc), Kisqali (+50%

cc), Leqvio (+134% cc) and Pluvicto (+44% cc)

-- Core operating income margin 39.6%, +270 basis points (cc), mainly

driven by higher net sales

-- Q2 operating income grew +47% (cc, +43% USD) and net income up +49% (cc,

+43% USD)

-- Q2 core EPS grew +21% (cc, +17% USD) to USD 1.97

-- Q2 free cash flow1 of USD 4.6 billion (+40% USD) driven by higher net

cash flows from operating activities

-- H1 sales up +11% (cc, +9% USD) and core operating income up +21% (cc,

+16% USD)

-- Q2 selected innovation milestones:

-- Fabhalta (iptacopan) received EU, Japan and China approval for the

treatment of PNH

-- Lutathera approved by FDA for pediatric GEP-NET patients (>=12

years)

-- Scemblix filing for 1L CML accepted by FDA; received Breakthrough

Therapy designation

-- Atrasentan FDA filing accepted for the treatment of adult patients

with IgAN

-- Kisqali NATALEE updated data showed continued clinical benefit

with median follow-up 4 years

-- Full-year 2024 guidance raised for core operating income based on strong

momentum2

-- Net sales expected to grow high-single to low double-digit

(unchanged)

-- Core operating income expected to grow mid- to high teens (from

low double-digit to mid-teens)

Basel, July 18, 2024 -- commenting on Q2 2024 results, Vas Narasimhan, CEO of Novartis, said:

"Novartis delivered a strong Q2, with net sales up 11% and core operating income margin approaching 40%. Our performance reflects continued strong momentum of our key growth drivers, both in the US and ex-US, which has allowed us to upgrade our FY2024 guidance. We also advanced our pipeline in Q2, completing submissions to the FDA for Scemblix in first-line CML and atrasentan in IgAN, generating updated data in the NATALEE study to support the strong profile of Kisqali in eBC, and executing multiple deals to expand our pipeline in RLT and prostate cancer. We remain on track to achieve our mid-term sales growth (+5% cc CAGR 2023-2028) and margin (40%+ by 2027) guidance."

Key figures Continuing operations(3)

----------------------------------------------------------

Q2 2024 Q2 2023 % change H1 2024 H1 2023 % change

USD m USD m USD cc USD m USD m USD cc

------- ------- ----- --- ------- ------- ----- ---

Net sales 12 512 11 437 9 11 24 341 22 235 9 11

------- ------- ----- --- ------- ------- ----- ---

Operating income 4 014 2 807 43 47 7 387 5 425 36 43

------- ------- ----- --- ------- ------- ----- ---

Net income 3 246 2 271 43 49 5 934 4 421 34 43

------- ------- ----- --- ------- ------- ----- ---

EPS (USD) 1.60 1.09 47 52 2.91 2.12 37 47

------- ------- ----- --- ------- ------- ----- ---

Free cash flow 4 615 3 292 40 6 653 5 976 11

------- ------- ----- ------- ------- -----

Core operating

income 4 953 4 240 17 19 9 490 8 146 16 21

------- ------- ----- --- ------- ------- ----- ---

Core net income 4 008 3 502 14 18 7 689 6 735 14 19

------- ------- ----- --- ------- ------- ----- ---

Core EPS (USD) 1.97 1.69 17 21 3.77 3.23 17 22

------- ------- ----- --- ------- ------- ----- ---

1. Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 43 of the Interim Financial Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year. 2. Please see detailed guidance assumptions on page 7. 3. As defined on page 33 of the Interim Financial Report, Continuing operations include the retained business activities of Novartis, comprising the innovative medicines business and the continuing corporate activities and Discontinued operations include operational results from the Sandoz business.

Strategy

Our focus

In 2023, Novartis completed its transformation into a "pure-play" innovative medicines business. We have a clear focus on four core therapeutic areas (cardiovascular-renal-metabolic, immunology, neuroscience and oncology), with multiple significant in-market and pipeline assets in each of these areas, that address high disease burden and have substantial growth potential. In addition to two established technology platforms (chemistry and biotherapeutics), three emerging platforms (gene & cell therapy, radioligand therapy and xRNA) are being prioritized for continued investment into new R&D capabilities and manufacturing scale. Geographically, we are focused on growing in our priority geographies -- the US, China, Germany and Japan.

Our priorities

1. Accelerate growth: Renewed attention to deliver high-value medicines

(NMEs) and focus on launch excellence, with a rich pipeline across our

core therapeutic areas.

2. Deliver returns: Continuing to embed operational excellence and deliver

improved financials. Novartis remains disciplined and shareholder-focused

in our approach to capital allocation, with substantial cash generation

and a strong capital structure supporting continued flexibility.

3. Strengthening foundations: Unleashing the power of our people, scaling

data science and technology and continuing to build trust with society.

Financials

Following the September 15, 2023, shareholder approval of the spin-off of Sandoz, Novartis reported its consolidated financial statements as "continuing operations" and "discontinued operations."

Continuing operations include the retained business activities of Novartis, comprising the innovative medicines business and the continuing corporate activities. Discontinued operations include the Sandoz Division and selected portions of corporate activities attributable to Sandoz's business, as well as certain expenses related to the spin-off.

While the commentary below focuses on continuing operations, we also provide information on discontinued operations.

Continuing operations

Second quarter

Net sales were USD 12.5 billion (+9%, +11% cc), with volume contributing 15 percentage points to growth. Generic competition had a negative impact of 2 percentage points and pricing had a negative impact of 2 percentage points.

Operating income was USD 4.0 billion (+43%, +47% cc), mainly driven by higher net sales and lower impairments, partly offset by higher R&D investments.

Net income was USD 3.2 billion (+43%, +49% cc), mainly driven by higher operating income. EPS was USD 1.60 (+47%, +52% cc), benefiting from the lower weighted average number of shares outstanding.

Core operating income was USD 5.0 billion (+17%, +19% cc), mainly driven by higher net sales, partly offset by higher R&D investments. Core operating income margin was 39.6% of net sales, increasing 2.5 percentage points (+2.7 percentage points cc).

Core net income was USD 4.0 billion (+14%, +18% cc), mainly due to higher core operating income. Core EPS was USD 1.97 (+17%, +21% cc), benefiting from the lower weighted average number of shares outstanding.

Free cash flow from continuing operations amounted to USD 4.6 billion (+40% USD), compared with USD 3.3 billion in the prior-year quarter, driven by higher net cash flows from operating activities from continuing operations.

First half

Net sales were USD 24.3 billion (+9%, +11% cc), with volume contributing 15 percentage points to growth. Generic competition had a negative impact of 2 percentage points and pricing had negative impact of 2 percentage points.

Operating income was USD 7.4 billion (+36%, +43% cc), mainly driven by higher net sales and lower impairments and restructuring charges, partly offset by a prior-year one-time income from legal matters.

Net income was USD 5.9 billion (+34%, +43% cc), mainly driven by higher operating income. EPS was USD 2.91 (+37%, +47% cc), benefiting from the lower weighted average number of shares outstanding.

Core operating income was USD 9.5 billion (+16%, +21% cc), mainly driven by higher net sales, partly offset by higher R&D investments. Core operating income margin was 39.0% of net sales, increasing 2.4 percentage points (+3.1 percentage points cc).

Core net income was USD 7.7 billion (+14%, +19% cc), mainly due to higher core operating income. Core EPS was USD 3.77 (+17%, +22% cc), benefiting from the lower weighted average number of shares outstanding.

Free cash flow from continuing operations amounted to USD 6.7 billion (+11% USD), compared with USD 6.0 billion in the prior-year period, driven by higher net cash flows from operating activities from continuing operations.

Discontinued operations

Discontinued operations include the Sandoz generic pharmaceuticals and biosimilars division, certain corporate activities attributable to Sandoz and certain other expenses related to the spin-off of the Sandoz business.

Second quarter

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