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 sold in about 155 countries and they reached nearly 1 billion people globally in 2017. About 126 000 people of 145 nationalities work at Novartis around the world.
We believe biomedical innovation will continue to accelerate in coming years, yielding new treatments that will have an unparalleled impact on humanity. Better understanding of the molecular mechanisms of disease and new types of therapies promise to yield powerful new medicines. The trend toward patient-specific precision treatments will likely accelerate.
The adoption of more digital technology in science and healthcare is likely to transform everything from drug research to how doctors care for patients. Proliferating sensor technology is helping researchers and doctors gather more information about their patients’ responses to treatment. But other trends in society raise significant challenges. Rapidly aging populations and the growth in chronic illnesses such as heart disease and cancer continue to increase demand for care and put pressure on health systems around the world. These trends raise the importance of delivering true innovation that produces better health outcomes for patients and society – and doing this more efficiently.
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 believe innovation leadership will be increasingly important to respond to future opportunities and challenges, as we strive to continue creating value for our company, our shareholders and society. We are implementing our strategy with a focus on further strengthening innovation, driving a digital transformation, and reinforcing our position in growing areas of healthcare.
We believe innovation leadership will be increasingly important to respond to future opportunities and challenges
A strong culture anchored in a talented and committed workforce enables us to implement our strategy. We work to reinforce a company culture that supports our people as they grapple with a rapidly evolving healthcare industry and the shifting expectations of society. Our six values – innovation, quality, collaboration, performance, courage and integrity – help guide us as we select new recruits, shape employee development programs, and assess individual performance and rewards.
In 2017, we focused on fully implementing the integrated drug development and manufacturing structures we established a year earlier. With these latest steps in our transformation, we believe our organization is well positioned to drive forward our strategy.
Research and development is at the core of our company. The Novartis Institutes for BioMedical Research (NIBR) is the innovation engine of Novartis. NIBR focuses on discovering new drugs that can change the practice of medicine. The Global Drug Development (GDD) organization oversees the development of new medicines discovered by our researchers and partners. GDD allocates resources to the most promising development projects.
Our three divisions focus on growing areas of healthcare.
The Innovative Medicines Division has two business units: Novartis Pharmaceuticals, with patented treatments in the areas of ophthalmology, immunology and dermatology, neuroscience, respiratory and cardiometabolic; and Novartis Oncology, with treatments for cancers and rare diseases.
Sandoz focuses on high-quality, affordable generics and biosimilars.
Alcon offers one of the world’s widest selections of ophthalmic surgical devices and vision care products.
Novartis Operations includes our global service and manufacturing organizations. They focus on operational excellence and improving efficiency. Novartis Technical Operations handles manufacturing of innovative medicines and Sandoz products. Novartis Business Services consolidates support services across our organization.
Novartis delivered solid performance in 2017 as strong sales of our growth drivers, including Cosentyx, Entresto, Promacta/Revolade, and Tafinlar + Mekinist, continued to offset the impact of generic competition for our cancer drug Gleevec/Glivec. Our results underscore the breadth and strength of our product portfolio and highlight our success at steering through patent expirations.
Sales increased in the Innovative Medicines Division and the Alcon eye care division returned to growth. Sandoz Division sales declined due to increased price competition in the US.
Novartis net sales were USD 49.1 billion, up 1% in reported terms and up 2% in constant currencies (cc). Sales volumes increased 7%, more than offsetting the impact of patent expirations. Operating income in 2017 was USD 8.6 billion (+4%, +7% cc), mainly driven by higher sales, productivity improvements and lower amortization, which were partly offset by generic competition and higher marketing investments. Net income was USD 7.7 billion (+15%, +12% cc), benefiting from growth in operating income and income from associated companies. Earnings per share were USD 3.28 (+16%, +14% cc), benefiting from higher net income and our share buyback program. Free cash flow rose 10% to USD 10.4 billion, driven mainly by improved cash flow from operating activities.
We also present our core results, which exclude the impact of amortization, impairments, disposals, acquisitions, restructurings and other significant items, to help investors understand our underlying performance. Core operating income was USD 12.9 billion (-1%, 0% cc). Core operating income margin in constant currencies decreased 0.3 percentage points, mainly due to generic competition for Gleevec/Glivec, and higher launch investments, which were partially offset by expanded gross margins and productivity improvements. Exchange rate movements had an additional negative impact of 0.3 percentage points, yielding a net decrease of 0.6 percentage points to 26.2% of net sales. Core net income was USD 11.4 billion (+1%, +2% cc). Core earnings per share were USD 4.86 (+2%, +3% cc).
Our research and development team made strong progress in 2017. We received 16 major approvals, made 16 major submissions, and received six breakthrough therapy designations from the US Food and Drug Administration (FDA).
The FDA approved Kymriah (tisagenlecleucel, formerly CTL019) to treat children and young adults with a deadly cancer called acute lymphoblastic leukemia. Novartis was the first company to receive approval for this type of novel immunocellular therapy, which reprograms a patient’s own T-cells to fight cancer. Novartis also filed for FDA approval for Kymriah to treat adults with the most common form of non-Hodgkin’s lymphoma.
Several targeted cancer therapies were also approved. They include Kisqali (ribociclib, formerly LEE011), approved in 45 countries – including the US and in Europe – to treat advanced or metastatic breast cancer, and Rydapt (midostaurin), approved in the US and EU for acute myeloid leukemia and advanced systemic mastocytosis.
Sandoz built on its leadership in biosimilars, with European approvals for Rixathon (rituximab) and Erelzi (etanercept). Alcon received European approval for the Clareon IOL with AutonoMe, an automated, disposable, pre-loaded IOL delivery system for cataract surgery.
Novartis Access, our portfolio of medicines to help fight chronic diseases in lower-income countries, signed agreements with three countries, bringing the total to six. The program delivered more than 685 000 treatments – each providing a one-month supply of medicine – in 2017, and it has delivered a total of more than 800 000 treatments since its 2015 launch. Starting in 2018, we will broaden Novartis Access into the private sector in select countries.
Along with Novartis Oncology, Novartis Access also partnered with the American Society for Clinical Pathology and the American Cancer Society to improve the management of cancer in sub-Saharan Africa.
The Novartis Foundation and partners launched Better Hearts Better Cities to address hypertension in low-income urban communities with interventions that go beyond healthcare. The approach is being tested in Mongolia, Senegal and Brazil.
Our Healthy Family programs reached more than 7.7 million people through health education sessions in India, Kenya and Vietnam. Nearly 580 000 people attended specific health camps. In India, the program celebrated its 10th anniversary; it covers 11 states and approximately 14 000 villages and small towns that are home to more than 32 million people. At the same time, the Kenya program broke even, joining India and Vietnam in this regard.
We took steps to further strengthen integrity and compliance, including approving a new Professional Practices Policy, updating our Anti-Bribery Third-Party Guideline, and strengthening our anti-bribery due diligence process. We published a US Transparency and Patient Access Report, which addresses important questions about our business practices in the US.
Novartis was recognized in sustainability rankings, including Fortune magazine’s “Change the World” list (No. 4) and “World’s Most Admired Companies” list for the pharmaceutical industry (No. 2). We were also fourth in the 2017 Dow Jones Sustainability Index (DJSI) World, and we re-entered the DJSI Europe Index for the first time in four years. We were again recognized as one of the world’s most sustainable companies by Corporate Knights, and we were one of 73 companies worldwide to make CDP’s Water A List.
We continued to pursue excellence in corporate governance in 2017. We further refreshed the Board of Directors with the addition of Frans van Houten, reinforcing our expertise in the area of digital health solutions. We benefited from the experience and knowledge of new Board members, appointed new heads of three Board committees, and intensified our shareholder engagement.
Key focus areas for our Board in 2017 included CEO succession; strategic options for Alcon; the overall Novartis strategy, including the digital strategy; the culture of our company; compliance; and our compensation system.
During 2017, we also reviewed and adapted the compensation systems for the Board and Executive Committee, and enhanced our disclosures in the 2017 Compensation Report.