Continuing healthcare operations build momentum in the first nine months of 2008
Net sales advance 12% (+4% in local currencies) to USD 31.4 billion, led by Pharmaceuticals and double-digit growth in Vaccines and Diagnostics
Operating income up 24% to USD 7.3 billion on the solid business expansion, enhanced productivity and currency benefits
Net income up 19% to USD 6.7 billion, impacted by a higher tax rate in 2008 and the start of financing costs for 25% Alcon investment; Basic EPS up 22% to USD 2.93
Strong pipeline: Three submissions receive accelerated US priority review status amid plans for more than 10 major US/EU regulatory submissions in 2008
New Group structure and nominations strengthen top leadership team
Novartis on track to achieve another year of record sales and earnings in 2008

Basel, October 20, 2008 - Commenting on the results, Dr. Daniel Vasella, Chairman and CEO of Novartis said: "Led by the enhanced performance of Pharmaceuticals in all regions as well as solid sales growth in Vaccines and Diagnostics and productivity gains in Consumer Health, we have achieved strong results in the third quarter of 2008 despite significant volatility in the global economic environment. We are rejuvenating our portfolio as recently launched pharmaceutical products provided USD 2.1 billion in sales to date in 2008 and several novel medicines have been recognized for their benefits to patients with priority review status at the FDA. Also, with a strong new leadership team, Novartis is positioning itself for continued growth and success in a demanding environment. Despite the economic uncertainty in the world markets, Novartis is on track for another year of record results in 2008, continuing to build momentum by focusing on innovation and performance."
OVERVIEW
Nine months to September 30
Accelerating Pharmaceuticals growth underpins the strong results in continuing operations now focused solely on healthcare.
Group net sales rose 12% (+4% in local currencies) to USD 31.4 billion as higher sales volumes produced five percentage points and positive currency translation contributed eight points. Price changes reduced sales by one percentage point. Acquisitions had no impact.
Operating income advanced 24% to USD 7.3 billion thanks to the strong business expansion, as well as productivity gains from Forward, the Group-wide efficiency initiative that has provided resources for investments in strategic initiatives such as stepping up innovation and expanding in high-growth markets. The 2007 third quarter included an exceptional charge of USD 590 million to increase corporate environmental provisions. The operating income margin rose to 23.2% of net sales from 20.9% in the year-ago period. Excluding the environmental charge, operating income was up 13% in the first nine months of 2008.
Net income rose 19% to USD 6.7 billion in the 2008 nine-month period. Net income growth was slower than operating income growth due to an unusually low tax rate in 2007 that reflected various one-time factors. Also, weighing on the performance were financing costs since July 2008 for the acquisition of an initial 25% stake in Alcon, the world leader in eye care, from Nestlé S.A. Basic earnings per share (EPS) advanced 22% to USD 2.93 on fewer outstanding shares.
Third quarter
Group net sales rose 12% (+7% lc) to USD 10.7 billion as Pharmaceuticals grew ahead of expectations and the US business returned to growth following challenges from products lost to generic competition in 2007 and the Zelnorm suspension, which negatively affected results in 2007. Higher sales volumes contributed eight percentage points of growth, while positive currency translation provided five percentage points. Price changes reduced sales by one percentage point.
Operating income surged 61% to USD 2.3 billion on the solid business expansion along with productivity gains in Pharmaceuticals, Sandoz and Consumer Health as well as from the Forward initiative. The operating income margin rose to 21.7% of net sales from 15.1% in the 2007 period. Excluding the year-ago exceptional corporate environmental charge, operating income rose 14%, above net sales expansion.
Net income rose 32% to USD 2.1 billion, at a slower pace than operating income as a result of the negative impact of a 14% tax rate in the 2008 quarter as compared to 2.3% in the 2007 period, which was very low due to various one-time factors, as well as higher financing costs due to the first stage of the Alcon acquisition in the 2008 third quarter. Basic earnings per share (EPS) rose 35% to USD 0.92. Excluding the corporate environmental charge in 2007, net income in the 2008 third quarter rose 2%.
Taking strategic actions for sustainable growth
In a rapidly changing and increasingly challenging environment, Novartis is implementing longer-term strategic initiatives to deliver sustainable and profitable growth. Key actions include strengthening the Group's healthcare portfolio, driving innovation through novel medicines, expanding in high-growth markets and improving efficiency.
Selectively strengthening healthcare portfolio
Novartis is strengthening its healthcare portfolio through targeted acquisitions. On July 7, Novartis purchased a 25% stake in Alcon Inc. (NYSE: ACL), the world's largest and most profitable eye care company, from Nestlé S.A. for USD 10.4 billion in cash as part of an agreement providing Novartis an opportunity to take majority ownership. In an optional second step, Novartis can acquire, and Nestlé can sell, the remaining 52% Alcon stake held by Nestlé between January 2010 and July 2011 for up to USD 28 billion. Alcon offers a range of pharmaceutical, surgical and consumer products for conditions of the eye. Also in the third quarter, Novartis acquired Speedel Holding Ltd. (SWX: SPPN), underpinning the direct renin inhibition program led by Tekturna/Rasilez and follow-on programs. Novartis holds 99.8% of Speedel's outstanding shares after a mandatory public tender offer ended in September. The acquisition price for the 90% not previously owned is estimated at CHF 933 million (or currently USD 850 million). Some of Speedel's development projects are being integrated into Pharmaceuticals R&D operations.

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