Novartis AG: FY2021 Form 20-F Summary
Reporting period: Year ended December 31, 2021; filed February 2, 2022. The filing is an annual Form 20-F, not a standalone Q4 filing. Financial statements are prepared under IFRS as issued by the IASB and presented in U.S. dollars. Novartis operates through Innovative Medicines and Sandoz; Alcon is reported as discontinued operations following the 2019 spin-off.
Key financial metrics
| USD millions, except percentages and per-share data | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales from continuing operations | 51,626 | 48,659 | +6% reported; +4% constant currency |
| Gross profit | 37,010 | 34,777 | +6% |
| Operating income | 11,689 | 10,152 | +15%; margin 22.6% vs. 20.9% |
| Core operating income | 16,588 | 15,416 | +8%; margin 32.1% vs. 31.7% |
| Net income | 24,018 | 8,071 | +198% |
| Basic EPS | 10.71 | 3.55 | +202% |
| Operating cash flow | 15,071 | 13,650 | +10% |
| Free cash flow | 13,282 | 11,691 | +14% |
Revenue mix: Innovative Medicines generated USD 42.0 billion, up 8% reported and 6% in constant currencies, representing 81.3% of Group sales. Sandoz generated USD 9.6 billion, broadly flat reported and down 2% in constant currencies.
Profit drivers: Operating income benefited from higher sales and lower legal expenses, partly offset by higher selling, general and administrative, research and development, amortization and restructuring costs. Research and development expense was USD 9.5 billion, or approximately 18.5% of sales.
Liquidity and debt: Cash and cash equivalents were USD 12.4 billion and marketable securities, commodities, time deposits and derivative financial instruments were USD 15.9 billion. Total financial debt was USD 29.2 billion, comprising USD 22.9 billion of non-current debt and USD 6.3 billion of current debt and derivative liabilities. Reported net debt declined to USD 0.9 billion from USD 24.5 billion. The undrawn committed credit facility was USD 6.0 billion, maturing in September 2024. Moody’s rated Novartis A1/P-1 and S&P rated it AA-/A-1+ at year-end.
Material changes versus the prior comparable period
- Net sales growth was primarily volume-driven, with volume contributing 8 percentage points, partly offset by pricing pressure and generic competition, each contributing approximately 2 percentage points of negative impact.
- Growth was led by Entresto, Cosentyx, Zolgensma, Kesimpta, Promacta/Revolade, Kisqali and Jakavi. Entresto sales rose 42% to USD 3.5 billion; Cosentyx rose 18% to USD 4.7 billion; Zolgensma rose 47% to USD 1.4 billion.
- Established Medicines sales declined 9%, while mature products including Gilenya, Gleevec/Glivec, Afinitor/Votubia, Diovan and Galvus faced generic or government procurement pressure.
- Sandoz sales were constrained by intense generic price competition, softer retail demand, COVID-19 effects and prior-year U.S. off-contract sales. Biopharmaceuticals sales increased 10%, but Retail Generics declined 2% and Anti-Infectives third-party sales declined 11%.
- Net income included a USD 14.6 billion gain from the divestment of Novartis’s Roche investment. Cash proceeds from the divestment were USD 20.7 billion. This one-time item substantially distorts year-over-year net income, EPS and cash-flow comparisons.
- Novartis paid USD 7.4 billion in dividends and repurchased USD 2.9 billion of shares. Outstanding shares declined to approximately 2.235 billion at year-end.
- Intangible asset impairment charges declined to USD 403 million from USD 914 million in 2020, while goodwill and intangible assets remained substantial at USD 63.8 billion.
Outlook, commentary, risks and unusual items
Management stated that operations remained stable despite COVID-19, with manageable disruption to clinical development and normal trade-receivable collection patterns. The filing does not provide a clear standalone 2022 revenue or earnings guidance figure in the supplied text. Management expects healthcare demand to grow, but anticipates continuing pricing and reimbursement pressure, particularly in the United States and Europe.
- Sandoz strategic review: In October 2021, Novartis began reviewing alternatives ranging from retaining Sandoz to separating the division. The outcome, timing and financial effects were not determined in the filing.
- Pipeline and regulatory execution: Key advances included approvals for Leqvio and Scemblix and progress in radioligand, gene, cell and biosimilar therapies. The filing also reports clinical setbacks involving Kymriah, canakinumab, iscalimab and other programs.
- Patent and competition exposure: Loss of exclusivity and generic or biosimilar competition remain significant risks, especially for mature products. Gilenya, Entresto, Kisqali and other products face patent challenges or future competition risks.
- Legal and regulatory matters: Novartis and Sandoz remain involved in investigations and litigation involving pricing, antitrust, product liability, intellectual property, marketing practices and healthcare reimbursement. Sandoz paid USD 185 million plus interest in 2021 to resolve related U.S. generic-pricing claims and entered into a corporate integrity agreement.
- Other commitments: Contractual cash obligations totaled USD 46.2 billion, including debt, interest, leases, pension obligations, research and development milestones, contingent consideration and property commitments. Research and development potential milestone commitments were USD 6.7 billion.
- Pending acquisition: Novartis agreed to acquire Gyroscope Therapeutics for approximately USD 0.8 billion upfront plus up to USD 0.7 billion in potential milestones; closing was expected in the first quarter of 2022, subject to customary conditions.
- Dividend: The Board proposed a dividend of CHF 3.10 per share for shareholder approval at the March 4, 2022 AGM, compared with CHF 3.00 for the prior year.
- Controls and audit: Management and PricewaterhouseCoopers concluded that internal control over financial reporting was effective as of December 31, 2021. The Board proposed KPMG as auditor beginning with fiscal 2022, subject to shareholder approval.
Most important facts for investors to verify
- Separate recurring operating performance from the USD 14.6 billion Roche divestment gain and its related cash proceeds.
- Assess whether Innovative Medicines growth can offset patent expiries, generic competition and pricing pressure.
- Monitor the Sandoz strategic review, including any separation transaction, restructuring costs, stranded costs or changes in segment reporting.
- Review the timing and commercial potential of major pipeline assets, including Leqvio, radioligand therapies, gene therapies, biosimilars and tislelizumab.
- Evaluate the adequacy of provisions for legal, product liability, governmental investigation, environmental and tax matters.
- Reconcile core, constant-currency and free-cash-flow measures to IFRS results because Novartis defines these non-IFRS measures independently and they may not be comparable with other issuers.
- Review revenue deduction provisions of USD 6.5 billion and the assumptions supporting U.S. managed-care, Medicare Part D and Medicaid rebates.
- Monitor debt maturities, share repurchases, the proposed dividend and the use of Roche divestment proceeds.