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Jennifer Stowe

on 29 August 2015

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Transcript of NOVARTIS


Financial Overview/ Initiatives for the Future
Our Mission: We want to discover, develop and successfully market innovative products to prevent and cure diseases, to ease suffering and to enhance the quality of life.

Revenue Growth
Recommendations on Financial Position
Key Financial Indicators
Q.Sales/ Net Income
Increasing Profitability
Return on Sales
Net margin : 17.73%
Operating margin: 18.51%
Operational Overview
Company Strategy
Multinational pharmaceutical company based in Basal, Switzerland

Specializing in pharmaceuticals and eye care.

Novartis’s largest drug sales are Gleevac and Diovan
Diverse Product Portfolio
Key Products
Decreasing Quarterly Net Income: -8%
Affected by the volatile currency market
Take out factor of currency flux income rose by 6%

Sales increased by 9%.

Company Overview
Operational Overview
Public Company
Incorporated: 1996 (from merger)
Employees: 135,696
Sales: $57.9 billion
Net Income: $12.533 billion
Debt/ Leverage
Asset Turnover: Sales Revenue/ Assets

Ability to generate sales from assets.

The lower the number the less efficient the company is in using its assets to generate revenue.

Inventory Turnover
Competitor Comparison
Quarterly Loss due to loss in revenue Vision Care Section. After taking the volatile currency market into consideration Novartis showed a profit
A patent cliff is when a firm's revenues could "fall off a cliff" when one or more established products go off-patent, since these products can be replicated and sold at much cheaper prices by competitors.

Patent cliffs are the biggest issues facing our industry.
IMS predicts that from 2011-2016, due to patent expiration, BIG pharm will have lost 106 BILLION
Novartis develops 70% of it's drugs in-house.
Generic Expansion
In response to the patent cliffs, Novartis diversified into generics.
In 2003, Novartis set up the Sandoz business Unit
Devoted to Generics
Response to Patent Cliff

Patent Cliffs= Looming Revenue Loss
Reduce Staff
Diversify into Generics
Change research operations into small
"drug performance units".

Future Initiatives

Optimism about the drugs currently in the pipeline. In Particular the drug Entresto, heart disease drug, recently approved by the FDA

Movement into the OTC Market as a joint venture combining the consumer healthcare business of Novartis and GSK.

Change research operations into small
"drug performance units".

Financial Recommendations
One Year Plan

Continue to expand into emerging markets.

Increase relationship between company and patients, less sales reps

More outcomes-based medicine

Products focused on the individual: apps, online market place.

Financial Recommendations
Five Year Plan

Greater Focus on Specialty Care Drugs

Focus on Rare Disease Drug Research with unmet needs

Double volume of drugs/treatments in pipeline, but geared towards more targeted populations

Increase market share to 10% with movement into emerging markets
Gleevac- 4.7 Billion - myeloid leukemia
Diovan- 4.5 Billion- HTN
Generic Drugs- 8.7 Billion
Net Profit Margin: Net Profit/ Revenue
Shows how much of each Dollar earned by the company is translated into profits.
Industry Average: 12.63%
More Profit: Better control of cost
Operating Profit Margin: A profitability ratio calculated as operating income divided by revenue Industry Average: 18.0%
Profitability: Return on Sales
ROE: 14.04% Industry Avg: 16.7%
ROA: 8.11% Industry Avg: 8.38%

ROE: Net Income/ shareholder equity
ROA: Net Income/ Total Assets

Decreased asset utilization and Fin. Leverage
Deteriorating Profitability
Return on Investment
This is an example of why things can be more difficult when a company functions internationally
Quick Ratio: Cash+ short term investments/ current liabilities

Current Ratio: current assets/ current liabilities- higher the better
Ability to pay short-term and long term obligations

Inventory Turnover High= Facing High Sales
Asset Growth to Revenue Growth
Asset Growth with slight drop in Revenue- less efficient
Financial Leverage
Total Debt increased by 2.4 billion in 2014 to a total of 20.8 billion.

Financial Leverage:Debt/ Shareholders Equity
The way a company utilizes borrowed money

Lower numbers are better.
Patent Cliff
It takes 10 years and One billion dollars to bring a drug to market



The company owes 22 cents for every Dollar of assets
Pfizer – 51.22%
Bristol-Myers Squibb – 52.27%,
Eli Lily and Co. – 52.35%
Merck and Co. – 43.87%

Divesting into 3 divisions and one joint division.
Early this year it sold its Animal Health Division to Eli Lilly for 5.4 million. 1st Q gain of 2015 was 4.7 billion
This year Novartis plans on selling it's vaccine business to GlaxoSmith Kline. And will go into a joint business with GSK for production of OTC medications.
The decline is due to unfavorable exchange rates and unprofitable divisions that are currently being sold off.
Focus on:

1. Generics: Sandoz- 9.5 Billion. Profitable margins on generics

2. Eyecare: Alcon- 11 Billion. The number on eye care company in the world.

3. Pharmaceuticals- 35 Billion

4. Joint venture with GSK for OTC medication

Efficiency Ratios
Fixed Asset Turnover:
Sales/ PPE
Ability to generate sales from fixed assets.

The lower the number the less efficient the company is in using its assets to generate revenue.
NVS: 3.20

NOV: 0.49
Ind Avg:0.48
Efficiency Ratio
New Assets= Lower Asset turnover
=lower acc. depreciation=higher book values
New Assets= Lower Asset turnover
=lower acc. depreciation=higher book values
Full transcript