• Novartis achieved 19% sales growth in constant currencies and excellent operating leverage in the second quarter
o Net sales grew 27% (+19% in constant currencies, or cc) to USD 14.9 billion; first half up 21% (+16% cc) to USD 28.9 billion
o Core operating income rose 29% (+30% cc) to USD 4.2 billion; core margin up 0.4 percentage points (+2.6 percentage points cc)
o Core EPS increased 23% (+25% cc) to USD 1.48
o Free cash flow grew 39% to USD 3.3 billion
o Shareholder returns and a sound capital structure remain a priority; limit on dividend payments to 35-60% of net income lifted
• Healthcare portfolio and portfolio rejuvenation strengthen foundation for future growth
o Diversified healthcare portfolio generated sales and profit growth ahead of market with strong contributions from Alcon, Sandoz and Consumer Health
o Recently launched products grew 46% over previous-year quarter to USD 3.8 billion
o Best-in-class Gilenya launch with USD 138 million in first half sales
• Commitment to innovation results in four major approvals and two major filings
o FDA approved Afinitor for advanced pancreatic neuroendocrine tumors and Arcapta Neohaler for chronic obstructive pulmonary disease
o EU granted approval for Lucentis in retinal vein occlusion and for hypertension medicine Rasilamlo
o Janus kinase inhibitor INC424 was filed for myelofibrosis in Europe; FDA accepted application to expand Menveo indication to toddlers and infants as young as 2 months
Key figures
Q2 2011 Q2 2010 % change H1 2011 H1 2010 % change
USD m USD m USD cc USD m USD m USD cc
Net sales 14 915 11 716 27 19 28 942 23 847 21 16
Operating income 3 322 2 961 12 15 6 730 6 472 4 7
Net income 2 726 2 437 12 17 5 547 5 385 3 7
EPS (USD) 1.13 1.06 7 12 2.33 2.34 0 3
Free cash flow 3 297 2 368 39 4 919 5 271 -7
Core1
Operating income 4 235 3 276 29 30 8 247 7 141 15 17
Net income 3 564 2 771 29 31 6 940 6 080 14 16
EPS (USD) 1.48 1.20 23 25 2.88 2.65 9 11

1 See page 44 for further information and definition of core results
All product names appearing in italics are trademarks owned by or licensed to Novartis Group Companies.

Basel, July 19, 2011 — Commenting on the results, Joseph Jimenez, CEO of Novartis, said:
“Excellent execution behind a sound strategy resulted in another successful quarter for Novartis. We achieved strong sales growth of 19% in constant currencies and margin improvement of 0.4 percentage points in US dollars. We further demonstrated the success of our R&D strategy with four
major approvals and two filings in the second quarter. Our diversified healthcare portfolio, focused on high growth segments, is enabling us to generate superior results.”
GROUP REVIEW
Second quarter
Net sales rose 27% (+19% cc) to USD 14.9 billion. Currency benefited sales by 8% as the US dollar weakened against most currencies. Recently launched products grew 46% over the previous-year quarter, contributing USD 3.8 billion to total net sales for the Group.
Pharmaceuticals net sales grew 10% (+2% cc) to USD 8.3 billion, driven by 8 percentage points of volume growth, partly offset by a negative pricing impact of 1 percentage points and the negative impact of generic entries and product divestments of 5 percentage points. Recently launched products
contributed USD 2.3 billion or 28% of Pharmaceuticals sales, an increase of 34% in constant currencies over the second quarter of 2010. Alcon contributed USD 2.6 billion of net sales in the second quarter. On a pro forma basis, Alcon grew 12% (+6% cc), with robust growth across geographies and products. Sandoz had an excellent quarter with net sales up 25% (+16% cc) to USD
2.5 billion, driven by 26 percentage points of volume growth, partly offset by a negative pricing impact of 13 percentage points. Vaccines & Diagnostics declined 47% (-50% cc) due to A(H1N1) pandemic flu vaccine sales of approximately USD 200 million in the second quarter of 2010; excluding this, sales declined due to timing of product shipments to key customers. The two Consumer Health businesses, OTC and Animal Health, together grew 5% in constant currencies. OTC’s strong growth ahead of market was driven by US, Canada and Germany as well as double-digit net sales growth in key
emerging markets. Animal Health achieved strong performance in Europe and emerging markets, which offset increasing competition in the US Companion Animal Business compared to last year.
Operating income was up 12% (+15% cc). Currency had a negative impact of 3%, as the benefit of a weaker dollar against most currencies was offset by an exceptionally strong Swiss franc. Exceptional items in operating income in the second quarter of 2011 include a divestment gain of USD 324 million
on the sale of Elidel®, offset by impairment charges in Vaccines & Diagnostics (USD 62 million) and Pharmaceuticals (USD 107 million), provisions for legal cases in Sandoz (USD 150 million), restructuring and impairment charges relating to the streamlining of our manufacturing network (USD
44 million) and Alcon integration costs (USD 80 million).
Core operating income, which excludes exceptional items and amortization of intangible assets, increased 29% (+30% cc). We generated excellent operating leverage in the quarter with core operating income margin increasing by 2.6 percentage points in constant currencies. Currency reduced the core operating margin by 2.2 percentage points, resulting in a net increase of 0.4
percentage points to 28.4 %. Pharmaceuticals grew core operating income by 6% in constant currencies on good cost management; Alcon contributed USD 947 million to core operating income, growing 12% (+8% cc) on a pro forma basis; Sandoz was up by 49% in constant currencies; and Consumer Health was up by 9% in constant currencies. Vaccines & Diagnostics reported a loss from the absence of A(H1N1) pandemic flu vaccine revenues and continued investment in the meningococcal disease and early vaccines portfolio.
Net income increased 12% (+17% cc) on strong operating income growth, benefiting from an improved tax rate of 16.0% (17.6% in the previous-year period), partially offset by lower income from associated companies. Core net income grew 29% (+31% cc). EPS advanced 7% (+12% cc) and core EPS was up by 23% (+25% cc) at a lower rate than net income as a result of the Alcon related share increase.
Free cash flow of USD 3.3 billion was 39% higher than in the previous year, primarily due to higher operating income, cash inflow for the Elidel® divestment (USD 420 million) and improved working capital.

First half
Net sales rose 21% (+16% cc) to USD 28.9 billion. Currency had a positive impact of 5 percentage points as the US dollar weakened against most currencies. Recently launched products grew 47% over the first half of 2010, contributing USD 7.1 billion to total net sales for the Group.
Pharmaceuticals net sales grew 8% (+3% cc) to USD 16.0 billion, driven by 8 percentage points of volume growth, partly offset by a negative pricing impact of 1 percentage points and the negative impact of generic entries and product divestments of 4 percentage points. Recently launched products contributed 27% of Pharmaceuticals sales (USD 4.3 billion), compared to 21% in the same period in 2010. Alcon contributed USD 5.0 billion of net sales in the first half, growing 11% (+7% cc) on a pro forma basis, underpinned by strong growth in surgical and ophthalmic pharmaceuticals. Sandoz sales grew 22% (+17% cc) compared to the first half of 2010, driven by 25 percentage points of volume growth, led by strong performances in the US, Canada, Western Europe and emerging markets, which more than compensated for 11 percentage points of price erosion. Vaccines & Diagnostics declined 65% (-66% cc) due to 2010 A(H1N1) pandemic flu vaccine sales of USD 1.3 billion; excluding this, sales grew 6% in constant currencies driven by our meningococcal disease and influenza franchises.
The two Consumer Health businesses delivered good sales growth of 13% (+8% cc) in the first half of 2011, with both OTC and Animal Health outpacing their respective markets.
Operating income advanced 4% (+7% cc), with currency movements depressing the result by 3 percentage points. Exceptional items in operating income in the first half of 2011 include divestment gains in Pharmaceuticals on the sale of ophthalmic pharmaceuticals required for approval of the Alcon merger (USD 81 million), a gain of USD 183 million resulting from a legal settlement in the Alcon
Division and USD 324 million in divestment income from the sale of Elidel®. These positive items were offset by charges and provisions for legal cases (Sandoz USD 178 million), restructuring and impairment charges relating to the streamlining of our manufacturing network (USD 99 million), the impairment of financial assets in Vaccines & Diagnostics (USD 81 million), intangible asset impairment charges in Pharmaceuticals (USD 107 million) and Alcon integration costs net of a divestment gain of a lens care product (USD 71 million).
Core operating income, which excludes exceptional items and amortization of intangible assets, increased 15% (+17% cc). We generated good operating leverage in the first half with core operating income margin increasing by 0.3 percentage points in constant currencies. Currency reduced the core operating margin by 1.7 percentage points, resulting in a net decrease of 1.4 percentage points to 28.5 %. Pharmaceuticals achieved core operating income growth of 7% (+8% cc) due to good cost management. Alcon contributed USD 1.8 billion to core operating income, growing 10% (+8% cc) on a pro forma basis. Vaccines & Diagnostics reported an operating loss mainly due to the absence of A(H1N1) pandemic flu vaccine revenues (USD 1.3 billion in 2010). Sandoz was up by 31% (+33% cc) and Consumer Health was up by 17% (+26% cc).
Net income grew 3% (+7% cc) on strong operating income growth, benefiting from an improved tax rate of 16.0% (from 17.0%), partially offset by lower income from associated companies. Core net income increased 14% (+16% cc). EPS was USD 2.33, broadly in line with the previous year as a result of the increased share count following the Alcon merger. Core EPS was USD 2.88, an increase of 9% (+11% cc).
Free cash flow of USD 4.9 billion was 7% lower than the previous year, primarily due to higher seasonal working capital.
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