Novartis is a global healthcare company based in Basel, Switzerland, with a history going back more than 150 years. We provide healthcare solutions that address the evolving needs of patients and societies worldwide. Novartis products are available in about 155 countries and they reached nearly 1 billion people globally in 2016. About 123 000 people of 142 nationalities work at Novartis around the world.
Growing and aging populations worldwide are driving change in healthcare, presenting both new opportunities and new challenges for Novartis. The global population will increase by more than 1 billion people by 2030, predicts the United Nations, with most of that growth occurring in developing countries. People over age 60 are the fastest-growing population segment, expected to add 500 million people and reach 1.4 billion by 2030. This is driving an increase in chronic illnesses across the globe.
These factors contribute to increasing demand for healthcare worldwide, which is putting cost pressure on health systems. Governments and health insurers are increasingly searching for ways to keep spending in check. They are focusing on the value they receive, based on the benefits for patients and healthcare systems.
These developments validate our focus on innovation to produce significant medical advances, and global scale to further improve our efficiency and effectiveness.
We believe Novartis is well prepared for a world with a growing, aging population and evolving healthcare needs. Our mission, vision and strategy support the creation of long-term value for our company, our shareholders and society.
Our mission is to discover new ways to improve and extend people’s lives. Our vision is to be a trusted leader in changing the practice of medicine. Our strategy is to use science-based innovation to deliver better patient outcomes in growing areas of healthcare.
We maintain strong investment in research and development focused on areas of unmet medical need.
Our mission is to discover new ways to improve and extend people’s lives. Our vision is to be a trusted leader in changing the practice of medicine.
Strong values shape our culture and help us implement the Novartis strategy in line with our mission and vision. They describe the professional behavior we expect from employees: innovation, quality, collaboration, performance, courage and integrity.
Novartis made organizational changes in 2016 aimed at reinforcing innovation and improving the efficiency and effectiveness of our operations. Novartis is now a more integrated company with a revised operating model. We created global functional organizations for drug development and manufacturing, combining units that were previously dedicated to individual divisions.
The Global Drug Development organization and Novartis Technical Operations join the Novartis Institutes for BioMedical Research and Novartis Business Services as global functional units that are better able to exploit the company’s scale, share best practices, and pursue excellence in their areas of expertise.
We adjusted the structure of Novartis divisions and business units, reinforcing their focus on our customers and on patients.
In our Innovative Medicines Division, we created two business units reporting to the CEO of Novartis: Novartis Oncology and Novartis Pharmaceuticals. This new structure reflects the increasing scale and importance of our Oncology business. We sharpened the focus of our Alcon Division on eye care devices, and shifted responsibility for ophthalmic pharmaceuticals to Novartis Pharmaceuticals. Our Sandoz Division remains dedicated to high-quality, more affordable generic medicines and biosimilars.
Our global functional organizations help drive efficiency and promote functional excellence.
The Novartis Institutes for BioMedical Research (NIBR) is the innovation engine of Novartis, focused on discovering new drugs that can change the practice of medicine.
The Global Drug Development (GDD) organization oversees the clinical development of new medicines discovered by our research teams and external partners.
Novartis Technical Operations (NTO) brings together all drug manufacturing at Novartis.
Novartis Business Services (NBS) consolidates support services across the company.
Novartis had solid performance in 2016, supported by a 20% increase in sales of our growth products1 as we navigated the US patent expiration of our pioneering cancer drug Gleevec. This underscores our ability to refresh our product portfolio. Our Innovative Medicines and Sandoz Divisions performed well in a challenging environment. We were unsuccessful in returning our Alcon Division to growth, but the growth plan initiated in 2016 is starting to bear fruit.
Novartis net sales in 2016 were USD 48.5 billion, down 2% in reported terms, but flat in constant currencies (cc). Our growth products1 – including Gilenya, Cosentyx and several cancer treatments acquired in 2015 – contributed USD 17.1 billion, or 35% of net sales. Operating income in 2016 was USD 8.3 billion (–8%, –3% cc), down mainly due to patent expirations, and increased investments related to new product launches and the Alcon growth plan.
Net income was USD 6.7 billion, down 5% in reported terms, but up 1% in constant currencies, due to higher income from associated companies. Earnings per share were USD 2.82 (–3%, +2% cc), up more than net income due to fewer outstanding shares. Free cash flow was USD 9.5 billion, up 2%, reflecting lower net investment in property, plant and equipment.
We also present core results,3 which exclude the impact of significant disposals, acquisitions, restructurings and other items. Core operating income was USD 13.0 billion (–6%, –2% cc). Core operating income margin (cc) declined 0.7 percentage points, due to the Gleevec patent expiration and our investments in new product launches and the Alcon growth plan. Exchange rates had a further negative impact of 0.4 percentage points, resulting in a net decrease of 1.1 percentage points to 26.8% of net sales. Core net income was USD 11.3 billion (–6%, –3% cc). Core earnings per share were USD 4.75 (–5%, –2% cc).
Research and development activities produced 16 major approvals and 24 major submissions in 2016. We received US regulatory approval for Cosentyx to treat ankylosing spondylitis and psoriatic arthritis. We filed for approval in the US and EU for our Tafinlar + Mekinist combination to treat non-small cell lung cancer; for PKC412 (midostaurin) in combination with standard chemotherapy to treat acute myeloid leukemia; and for LEE011 (ribociclib) in combination with letrozole for the treatment of a particular type of breast cancer.
Novartis received five breakthrough therapy designations from the US Food and Drug Administration in 2016.
Sandoz continued to lead in biosimilars with US approval for Erelzi (etanercept-szzs) to treat inflammatory diseases, although its launch has been delayed by litigation. Our biosimilar Binocrit (epoetin alfa) was approved in the EU for a new route of administration. And our filings seeking marketing approval were accepted in the EU for biosimilars pegfilgrastim and rituximab.
Alcon received US regulatory approval for the CyPass Micro-Stent to treat glaucoma, and launched the NGENUITY 3D Visualization System for vitreoretinal surgery.
Novartis Access, our portfolio of medicines to fight key chronic diseases in lower-income countries, is offered to governments and public-sector customers at a price of USD 1 per treatment per month. Since launch, it has delivered more than 120 000 treatments to Kenya, Lebanon and Ethiopia, each providing a one-month supply of medicine. In September, we signed a memorandum of understanding for the implementation of Novartis Access in Rwanda, and we expect the first product delivery in early 2017. To prepare for implementation elsewhere, we filed for approval to sell Novartis Access drugs in 21 countries.
The Novartis Malaria Initiative achieved another milestone in 2016, having delivered more than 800 million treatments without profit since 2001. Novartis expanded its partnership with the Medicines for Malaria Venture to develop antimalarial compound KAF156. SMS for Life 2.0 launched in Kaduna State, Nigeria’s third most populous region. The program uses smartphones and tablet computers to improve access to medicines and increase disease surveillance.
We improved the environmental footprint of our operations, reducing carbon emissions by 10 kilotons in 2016.
We continue our efforts to strengthen integrity and compliance across Novartis. We updated our Anti-Bribery Policy and launched a global online tool to handle conflicts of interest across the company. To ensure accountability of local country organizations, we include integrity and compliance in standard business reviews. We began using virtual meeting technology to supplement face-to-face meetings as we develop better, more inclusive ways of educating medical professionals about our products.
In 2016, Novartis was recognized in several corporate responsibility rankings, including the Access to Medicine Index, where Novartis ranked No. 3, moving up one place versus 2014. And we received an A- rating and were recognized among category leaders in healthcare in the 2016 CDP Climate Score.
We maintained our excellence in corporate governance in 2016. We refreshed the Board of Directors with new members, adding Elizabeth Doherty and Ton Buechner, and reinforcing our Board’s experience in the areas of accounting and management.
Key focus areas for our Board in 2016 included strategy, the culture of our company, our corporate responsibility programs, compliance and our compensation system.
In 2016, we continued to evaluate the effectiveness of our compensation programs to further align with our business strategy and shareholder interests. We also reported the results from the first cycle of our Long-Term Incentive plan introduced in 2014.
“Growth products” are an indicator of the rejuvenation of the portfolio, and comprise products launched in a key market (EU, US, Japan) in 2011 or later, or products with exclusivity in key markets until at least 2020 (except Sandoz, which includes only products launched in the last 24 months). They include the acquisition effect of the GSK oncology assets.
In constant currencies and for continuing operations
Core results are a non-IFRS measure. A definition of non-IFRS measures used by Novartis, and further details, including reconciliation tables, can be found starting on page 171.