Geschäftsbericht 2005 E
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CARING AND CURING ANNUAL REPORT 2005 CENTRE HOSPITALIER UNIVERSITAIRE (CTU); TOULOUSE, FRANCE GROUP REVIEW 1 OUR MISSION CONTENTS We want to discover, develop and success- NOVARTIS GROUP BUSINESS REVIEW fully market innovative products to cure GROUP REVIEW 2 FINANCIAL HIGHLIGHTS diseases, to ease suffering and to enhance 3 NEWS the quality of life. 5 LETTER FROM DANIEL VASELLA OPERATIONAL REVIEW 12 BUSINESS OVERVIEW: We also want to provide a shareholder PHARMACEUTICALS SANDOZ return that reflects outstanding performance CONSUMER HEALTH and to adequately reward those who invest 22 BUSINESS STORIES ideas and work in our company. CORPORATE CITIZENSHIP 48 INTRODUCTION 57 COMMITMENT TO PATIENTS 62 COMMITMENT TO OUR PEOPLE 67 COMMITMENT TO HEALTH, SAFETY AND ENVIRONMENT 74 COMMITMENT TO ETHICAL BUSINESS CONDUCT CORPORATE GOVERNANCE 79 COMMITMENT TO CORPORATE GOVERNANCE 98 BOARD OF DIRECTORS 104 EXECUTIVE COMMITTEE 108 BUSINESS UNIT HEADS NOVARTIS GROUP FINANCIAL REPORT 111 CONTENTS 114 OPERATING & FINANCIAL REVIEW 134 EQUITY STRATEGY 136 NOVARTIS GROUP CONSOLIDATED FINANCIAL STATEMENTS 198 NOVARTIS AG FINANCIAL STATEMENTS 204 KEY DATES 2006 205 CONTACT ADDRESSES FRONT COVER: NURSE AND CHILD; JINKA HOSPITAL; JINKA, ETHIOPIA 2 FINANCIAL HIGHLIGHTS GROUP REVIEW FINANCIAL HIGHLIGHTS KEY FIGURES NET SALES, OPERATING INCOME AND NET INCOME (in USD millions unless indicated otherwise) (in USD millions) 2005 2004 1 Net sales 32 212 28 247 35000 6 905 Operating income 6 289 30000 Return on sales (%) 21.4 22.3 25000 Net income 6 141 5 601 Research and development 4 846 4 077 20000 Research and development 15000 as % of net sales 15.0 14.4 10000 Free cash flow 4 673 3 301 Number of employees at year end 90 924 81 392 5000 0 1 Pro forma except net sales and employees 20011 20021 20032 20042 2005 Net sales Operating income Net income 1 Not adjusted for new IFRS accounting rules 2 Pro forma SHARE INFORMATION EARNINGS PER SHARE (USD) AND PAY-OUT RATIO (%) 2005 2004 USD % Return on average equity (%) 19.0 18.6 2 Earnings per share (USD)1 2.63 2.37 2 2.8 56 Operating cash flow per share (USD) 3.46 2.84 2 2.4 48 52.48 ADS price at end of year (USD) 50.54 2.0 40 Share price at end of year (CHF) 69.05 57.30 1.6 32 Pay-out ratio based on outstanding shares (%) 33 38 1.2 24 0.8 16 1 Average number of shares outstanding in 2005: 2 332 848 144 (2004: 2 335 490 272) 0.4 8 2 Pro forma 0 0 20011 20021 20032 20042 2005 Earnings per share in USD Dividend pay-out ratio in % of net income 1 Not adjusted for new IFRS accounting rules 2 Pro forma NET SALES BY DIVISION OPERATING INCOME 2005 2004 2005 2004 PHARMACEUTICALS 63% 65% PHARMACEUTICALS 81% 81% SANDOZ 15% 11% SANDOZ 5% 4% CONSUMER HEALTH 22% 24% CONSUMER HEALTH 14% 15% NOVARTIS GROUP BUSINESS REVIEW 2005 GROUP REVIEW NEWS 3 NEWS IN 2005 GROUP Record results with double-digit net sales and operating income growth in 2005. Group net sales up 14% (+13% in local currencies) and operating income advances 10% as strong performances in all divisions are partially offset by acquisition-related costs. PHARMACEUTICALS Novartis continues to outpace competitors, gaining market share. Net sales rise 10% (+9% lc) based on excellent performances from strategic products. Operating income advances 12% as margin improves 0.7 percentage points to 29.7% of net sales. SANDOZ Transformational year with acquisitions of Hexal and Eon Labs to make Sandoz a world leader in generics. Both businesses per- formed well and exceeded expectations with sales rising 54% (+54% lc). CONSUMER HEALTH Focus on strategic brands and new product launches drives growth. Net sales climb 8% (+8% lc), also supported by contribution from the North American OTC business of Bristol-Myers Squibb, acquired in 2005. Operating income advances 5%. PIPELINE A total of 76 compounds in one of the industry’s most promising pipelines. Key late-stage successes in 2005 include approval of Exjade and positive new data for Galvus (type 2 diabetes), Rasilez (hypertension) and FTY720 (multiple sclerosis). RESEARCH Increase in the number and quality of compounds in early-stage development. The Novartis Institutes for BioMedical Research (NIBR) are exploring molecular pathways that may be shared by various diseases as an organizing concept. CORPORATE CITIZENSHIP In 2005, Novartis contributes USD 696 million worth of medicines through access-to-medicines programs for patients in need. DIVIDEND A dividend increase to CHF 1.15 per share (+10%) will be proposed to shareholders, reflecting the strong organic net sales growth and improved profitability. NOVARTIS GROUP BUSINESS REVIEW 2005 4 MARY ANN TRAN; NOVARTIS INSTITUTES FOR BIOMEDICAL RESEARCH; CAMBRIDGE, MASSACHUSETTS (US) GROUP REVIEW LETTER FROM DANIEL VASELLA 5 DANIEL VASELLA, M.D. DEAR SHAREHOLDERS: It gives me particular pleasure in our tenth growth was posted by the Cardiovascular business year to report another set of record and Oncology franchises, thanks to the results. class-leading products Diovan (used to con- trol hypertension) and Gleevec/Glivec (for Let me summarize the key 2005 figures: the treatment of chronic myeloid leukemia). Overall, the division once again successfully • Group net sales increased 14% (+13% in increased its market share last year. With a local currencies) to USD 32.2 billion total of 76 projects in clinical development, • Pharmaceuticals sales grew by 10% we have a full, innovative and promising (+9% in local currencies) pipeline. But in spite of – or precisely because • Sandoz secured a 54% increase in sales of – our current success, we need to keep a (+54% in local currencies) sharp eye on the market evolution. • Consumer Health sales gained 8% (+8% in local currencies) Three fundamental trends are boosting de- • Group operating income advanced to mand for healthcare services and medicines: USD 6.9 billion (+10%) • Net income rose by 10% to USD 6.1 billion 1. The aging of the world’s population, as the • Earnings per share amounted to USD incidence and the prevalence of disease 2.63 (+11%) rise with increasing age; • Free cash flow reached USD 4.7 billion 2. Ongoing technological discoveries and (+42%) developments, which lay the foundation for innovative pharmaceutical products; This good performance reflects our clear and and consistent strategy, which is based 3. Rapid economic growth in countries on innovation and achieving a leading such as China, India and Russia, leading position in the healthcare sector. Ultimately, to improvements in the provision of however, the key factors in our success are public healthcare. the skills and commitment of our associates, and I would like to thank them for their In line with changes in the population’s contribution. standard of living and lifestyles, these countries are also experiencing increasing Pharmaceuticals remains our biggest and incidence of chronic cardiovascular disease, most profitable business. Particularly strong diabetes, cancer and respiratory illness. In NOVARTIS GROUP BUSINESS REVIEW 2005 6 LETTER FROM DANIEL VASELLA GROUP REVIEW China alone, it is estimated that more than These, precisely, were the priorities that Through organic growth and acquisitions 160 million patients suffer from hypertension we pursued in 2005. The Pharmaceuticals in the course of 2005, we thus further and more than 20 million have diabetes. In Division further expanded its research expanded our operations in the healthcare addition, the demand for effective treat- operations, and this process will continue sector, paving the way for additional ments is outpacing economic growth: while in the coming year. For our generics business, sustained growth and at the same time the Chinese economy grew by 9.8% in the acquisition of Hexal and Eon Labs re- spreading risks more widely. 2005, sales of pharmaceuticals leapt by presented not only a geographical expansion 22.5%. In India, some 35% of the population but a substantial reinforcement and rein- What is ultimately essential, of course, is currently has access to essential drugs, and vigoration. In the US and Germany – the not only strategic decision-making but the proportion is expected to increase to most important generics markets – we have progress on the operational front. The gains 80% by 2020. secured a leading position, and gained access in market share achieved by Pharmaceuti- to a rich pipeline and new technologies. The cals have already been mentioned above. Counteracting the effects of these growth incorporation of a dynamic entrepreneurial There was a further rise in the proportion drivers, however, are various negative trends, culture is also having beneficial effects. of sales generated by products that will con- notably government price controls, with Sales are growing rapidly, integration is tinue to enjoy patent protection for an mandatory discounts, competitive pricing proceeding according to plan, and the team extended period of time. pressures, parallel imports from low-wage is highly motivated. Also pending is the out- countries, and increasingly stringent re- right acquisition of Chiron, a company in The first approval worldwide was granted gulatory requirements. Cost containment which we have held a minority stake since last year by the US FDA for Exjade, the measures introduced by governments include 1995. While Chiron’s pharmaceutical oper- breakthrough oral iron chelator. Iron over- the promotion of generics, which over the ations can be integrated into our own and load, mainly occurring as a result of next few years will show double-digit expan- its diagnostics unit has posted strong frequent blood transfusions, previously sion worldwide – in contrast to market growth, its vaccines business suffered a seri- required continuous infusion therapy, growth for patent-protected medicines, which ous decline as a result of significant quality which was especially burdensome for will be in the mid to high single-digit range.