Caring and Curing Annual Report 2003 UG E RZ Innen 27.2.2004 10:32 Uhr Seite 1
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UG_e_RZ_neu_Aussen 27.2.2004 10:36 Uhr Seite 1 www.novartis.com Caring and Curing Novartis Annual Report 2003 Annual Report 2003 UG_e_RZ_innen 27.2.2004 10:32 Uhr Seite 1 Novartis pharmaceutical production, Stein, Switzerland Novartis pharmaceutical production, Changping, Beijing, China Contents Overview 2 Financial Highlights 3 News in 2003 Letter from Daniel Vasella 5 The New Number Five in Pharmaceuticals Division and Business Units 9 Pharmaceuticals Giving Thalassemia Patients a Choice Discovering Pharmaceuticals Reliably and Predictably The Long Road to Blood-Pressure Control Treating Breast Cancer Will Never Be the Same Epilepsy - Putting Children First A New Frontier in the Fight Against Severe Allergic Asthma Two Decades of Leadership in Transplantation Hearing the Patient, Healing the Patient - Irritable Bowel Syndrome The Right Note: Saving a Singer’s Sight 32 Consumer Health Sandoz - Building a World Leader in Generics OTC - The Value of Global Brands Animal Health - Up and Running, Despite Arthritis Medical Nutrition - A New Relevance for Cancer Patients Infant & Baby - Alerting Parents to the Dangers of Childhood Obesity CIBA Vision - Innovation in Focus Corporate Citizenship 45 Active Societal Engagement Health, Safety and Environment 57 Turning Strong Commitment Into Firm Actions Human Resources 69 Fulfilling Career Aims Corporate Governance Section 77 Corporate Governance 90 Board of Directors 94 Executive Committee 96 Business Unit Heads Financial Report 99 Operating and Financial Review 111 Equity Strategy and Share Information 118 Group Consolidated Financial Statements and Notes 152 Principal Companies 154 Reconciliation to US GAAP 166 Financial Statements of Novartis AG Due Dates for Reporting in 2004 172 Contacts 173 Novartis Group Front cover: Mother and her sick child, Mumbai, India 1 Financial Highlights Sales USD millions Free cash flow USD millions 2003 24 864 2003 3 628 2002 20 877 2002 2 958 2001 18 762 2001 2 453 Operating income USD millions Research and development USD millions 2003 5 889 2003 3 756 2002 5 092 2002 2 843 2001 4 325 2001 2 528 Net income USD millions Employees at year end 2003 5 016 2003 78 541 2002 4 725 2002 72 877 2001 3 836 2001 71 116 Key ratios Share information 2003 2002 2003 2002 Return on sales (%) 23.7 24.4 Average number Return on average equity (%) 17.1 17.7 of shares outstanding 2 473 522 565 2 515 311685 Group research and development as % of sales 15.1 13.6 Earnings per share (USD) 2.03 1.88 Debt/equity ratio 0.20:1 0.20:1 Operating cash flow per share (USD) 2.68 2.08 Current ratio 2.4:1 2.5:1 American Depositary Share (ADS) price at end of year (USD) 45.89 36.73 Share price at end of year (CHF) 56.15 50.45 Dividend per share1 (CHF) 1.00 0.95 Pay-out ratio based on outstanding shares (%) 39 36 1 2003: Proposal to the Annual General Shareholder Meeting Sales by division Operating income by division Sales by region Pharmaceuticals 64% Pharmaceuticals 77% 41% US 36% Consumer Health 23% Consumer Health 8% Canada and Latin America 35% Europe 16% Africa/Asia/Australia 2 Novartis Group News in 2003 Group sales Strong volume growth in Pharmaceuticals and Sandoz: Group sales up 19% in USD (+11% in local currencies); Novartis is one of the fastest growing top-ten pharmaceutical companies Pharmaceuticals Pharmaceuticals steadily gaining market share in all major markets, with sales growth of 18% in USD, driven by the Cardiovascular and Oncology franchises Consumer Health Consumer Health ongoing sales up 24% driven by 60% sales growth at Sandoz New drugs With seven major approvals and 79 projects in clinical development and registration Novartis has one of the leading pipelines in the industry Operating income Double-digit (16%) rise in full-year operating income is driven by volume expansion, product mix enhance- ments and productivity gains Net income Net income is up 6% to a new record level of USD 5.0 billion, lifting earnings per share by 8% Dividend Based on solid performance, a dividend increase of 5% to CHF 1.00 per share will be proposed to shareholders Novartis Group 3 Our Healthcare Development Center, Thane, India Letter from Daniel Vasella Daniel Vasella, MD Kantonsspital, Basel, Switzerland Dear Shareowner, It gives me great pleasure to be able to present record results again. Today, Novartis is one of the fastest grow- ing global pharmaceutical companies. Thus, we have overtaken competitors and are now in fifth position in the Global Pharmaceuticals sector. At the same time, we have gained market segment share in all of our other busi- nesses. Let me summarize the key results in 2003: • Increase in group sales of 19% to USD 24.9 billion (+ 11% in local currencies) • Expansion of operating income to USD 5.9 billion (+16%), of net income to USD 5.0 billion (+6%) and of earnings per share by 8% to USD 2.03 • Growth of free cash flow by 23% to USD 3.6 billion • Pharmaceutical sales climbed 18% with the especially successful enlargement of our product line in Oncology (+36%) and Cardiovascular medicine (+36%), combined with a further rejuvenation of our product portfolio • Dynamic growth of our Consumer Health business (+24%) and particularly of our Generics business, Sandoz (+60%) • Expansion of our development pipeline to 79 projects, of which 34 are in late stage development or registration • Extension of our access to medicine programs for uninsured and indigent patients suffering from leprosy, malaria, tuberculosis, chronic myeloid leukemia and other diseases. We attribute our success to our clear focus on sustain- able growth, our corresponding, consistently innovation- oriented strategy, and the capabilities and commitment of our associates. Accordingly, we see our investments in Research and Development as being of primary impor- tance. Last year we increased our investment in Research and Development by 32%. In Pharmaceuticals alone, we invested more than USD 3 billion in 2003 to discover and develop innovative medicines, and to improve treatments for patients. The first phase in the buildup of our new research center in Cambridge, Massachusetts was success- fully completed. Nearly 400 scientists are already working in the new laboratories. In 2004, we will continue the expan- sion. This demands continued over-proportional invest- ments that will yield mid- to long-term returns. Novartis Group 5 Our development pipeline is among the best in the world, Elidel, our eczema treatment; as well as to the attractive based on quality and productivity. Most promising are our sales of Zelnorm/Zelmac, our irritable bowel treatment, to novel compounds for patients with diabetes, hypertension, name just some of our most important products. cancer and osteoporosis, and for transplantation medicine which will, if successful, significantly improve treatments The dynamic growth of our Generics business is primarily and thus have an attractive commercial potential. based on the success of AmoxC, loratadine and omeprazole in the US market. The development of activities at Lek, a In 2003, we received first major market approvals for generics company we acquired in 2002, also exceeded Certican and Myfortic for use in transplantation medicine, expectations. Stalevo for the treatment of Parkinson’s disease and Xolair for allergic asthma therapy in the US. Furthermore, In light of the increasing age of our society, and the asso- Prexige, a new treatment for pain and osteoarthritis, was ciated rise in healthcare expenditure, generics will play an approved in the UK. Its approval in the US is as yet uncer- even more important role as a cost effective therapeutic tain, pending results of additional trials. option. These cost savings can and should be used to provide patients with innovative, patent-protected medi- To complement our own research activities, we have estab- cines that have improved efficacy and safety profiles. lished several new collaborations with universities and biotechnology companies. The acquisition of 51% of the Unavoidably, governments, insurers and employers will capital stock of Idenix Pharmaceuticals Inc., a biotech- continue to put pressure on the price of pharmaceuticals, nology company based in Boston, Massachusetts, offers despite the fact that the overall cost of drug therapies us rapid entry into anti-viral research, and access to amounts to less than 20% of all healthcare-related costs development compounds for the treatment of hepatitis B in most countries. Also, medicines not only extend and C. Additionally, we acquired the commercial rights for patients’ life expectancy, but also improve their quality of Lucentis outside the US, Canada and Mexico. In combi- life and reduce their lost working hours and absence nation with our product Visudyne, this drug may improve from work due to illness. the treatment options in age-related macular degeneration, a frequent cause of blindness in adults. We also obtained Increasingly, health is regarded as a fundamental right. rights to a promising cancer drug, Gimatecan, from Sigma The introduction of prescription drug coverage into the Tau and the drug Enablex/Emselex for the treatment of US Medicare insurance system for senior citizens must urinary incontinence from Pfizer. also be seen from this perspective. Our market position improved in most countries, most The enlargement of the EU from 15 to 25 member states notably in the US. This we achieved thanks to the success will not only improve the standard of living in the new of our blood pressure-regulating medicines Diovan and member states, but also lead to demands for better Lotrel; our cancer drugs Gleevec/Glivec and Zometa; health-related products and services. A similar trend can 6 Novartis Group be observed in countries with rapidly growing Gross owners, to assess the current situation, risks and oppor- National Product (GNP), such as China and India. In each tunities of your company.