Novartis AG: FY2022 Form 20-F Summary
Business context and reporting period
Novartis AG, headquartered in Basel, Switzerland, is a global pharmaceutical company reporting under IFRS in U.S. dollars. The filing covers the fiscal year ended December 31, 2022, and was filed with the SEC on February 1, 2023. It reports two operating divisions: Innovative Medicines and Sandoz. The filing does not provide a clear standalone fourth-quarter 2022 income statement; the figures below are for the full year.
- Approximately 101,703 full-time-equivalent employees at year-end and products sold in approximately 140 countries.
- Innovative Medicines generated 81.7% of group net sales; Sandoz generated 18.3%.
Financial performance and liquidity
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net sales | USD 50.545 billion | USD 51.626 billion | -2% reported; +4% constant currencies |
| Operating income | USD 9.197 billion | USD 11.689 billion | -21% reported; -13% constant currencies |
| Operating margin | 18.2% | 22.6% | -4.4 percentage points |
| Net income | USD 6.955 billion | USD 24.018 billion | -71% |
| Basic EPS | USD 3.19 | USD 10.71 | -70% |
| Operating cash flow | USD 14.236 billion | USD 15.071 billion | -6% |
| Free cash flow | USD 11.945 billion | USD 13.282 billion | -10% |
| Core operating income | USD 16.665 billion | USD 16.588 billion | Flat reported; +8% constant currencies |
| Core operating margin | 33.0% | 32.1% | +0.9 percentage points |
Reported net income was heavily affected by the absence of the USD 14.6 billion gain from the 2021 divestment of the Roche investment. Excluding Roche-related impacts, 2022 net income declined 20% in reported terms and 9% in constant currencies; core net income increased 2% in reported terms and 11% in constant currencies.
- Innovative Medicines net sales were USD 41.296 billion, down 2% reported and up 4% in constant currencies. Operating income was USD 8.786 billion, with a 21.3% margin.
- Sandoz net sales were USD 9.249 billion, down 4% reported and up 4% in constant currencies. Operating income was USD 1.448 billion, with a 15.7% margin.
- Growth products included Entresto at USD 4.644 billion, Cosentyx at USD 4.788 billion, Kesimpta at USD 1.092 billion, Kisqali at USD 1.231 billion and Pluvicto at USD 271 million.
- Generic competition materially reduced sales of Gilenya, Afinitor/Votubia and Gleevec/Glivec. Established Brands sales declined 19% reported and 13% in constant currencies.
- Year-end liquidity was USD 18.930 billion, comprising USD 7.517 billion of cash and USD 11.413 billion of marketable securities, commodities, time deposits and derivatives.
- Total financial debt was USD 26.175 billion, including USD 20.244 billion non-current debt and USD 5.931 billion current debt. Reported net debt was USD 7.245 billion, compared with USD 0.868 billion at year-end 2021.
- The group had an undrawn USD 6.0 billion committed credit facility maturing in September 2025. Year-end ratings were A1/P-1 from Moody’s and AA-/A-1+ from S&P.
- Novartis repurchased 126.2 million shares for USD 10.8 billion and paid a USD 7.5 billion dividend during 2022.
Material changes versus the prior comparable period
- Operating income declined primarily because of USD 1.2 billion of restructuring costs, USD 1.0 billion of higher impairments and USD 0.6 billion of lower divestment gains.
- Restructuring additions were USD 1.4 billion, largely related to the new streamlined organizational model announced in April 2022.
- Intangible-asset impairment charges were USD 1.326 billion, including a USD 0.6 billion impairment related to discontinuation of the UNR844 clinical program.
- Operating cash flow and free cash flow decreased because of unfavorable working-capital movements, lower dividends from associated companies and lower divestment proceeds. Capital expenditures were lower than in 2021.
- Innovative Medicines launched or advanced products including Pluvicto, Scemblix and Kesimpta; however, generic erosion and pricing pressure offset part of the growth.
- Novartis completed the USD 1.0 billion acquisition of Gyroscope Therapeutics, adding the investigational gene therapy PPY988 for geographic atrophy.
- The company introduced a new organizational model, integrated its former Pharmaceuticals and Oncology businesses, and combined Technical Operations with Customer & Technology Solutions into Operations.
Guidance, outlook, management commentary and risks
- Management expects the new organizational model to deliver approximately USD 1.5 billion of savings by 2024. It described an aspiration for a core operating margin of approximately 40% or more beyond 2027, subject to execution and the planned Sandoz separation.
- Novartis intends to separate Sandoz through a 100% spin-off into a standalone publicly traded company, with completion expected in the second half of 2023, subject to board and shareholder approval, tax rulings, employee consultations and market conditions.
- The company expects continued pressure from healthcare cost containment, the U.S. Inflation Reduction Act, reimbursement restrictions, price controls, generic and biosimilar competition, and customer consolidation.
- Key operating risks include clinical-trial failures, regulatory delays, product safety or manufacturing issues, supply interruptions, loss of patent protection, cybersecurity and data-privacy incidents, IT transformation failures, talent retention, geopolitical and macroeconomic volatility, inflation, foreign-exchange movements and tax-law changes.
- Legal contingencies include product-liability claims, antitrust matters, government investigations and pricing or marketing disputes. Management states that provisions are adequate but acknowledges that additional costs could be material to results or cash flow in an individual period.
- Contractual cash obligations totaled USD 39.784 billion, including USD 5.814 billion of potential R&D milestone commitments, USD 5.532 billion of interest on non-current debt and USD 1.789 billion of lease liabilities.
- The board proposed a 2022 dividend of CHF 3.20 per share for shareholder approval at the March 7, 2023 AGM.
Most important facts for investors to verify
- Whether Innovative Medicines growth products can offset accelerating patent expiries and generic competition, particularly for Gilenya and other established brands.
- The timing, approvals, tax treatment, separation costs and final structure of the Sandoz spin-off.
- Delivery of the USD 1.5 billion restructuring savings target and progress toward the longer-term core-margin aspiration.
- Commercial uptake, manufacturing capacity and reimbursement for Pluvicto, Leqvio, Kesimpta, Kisqali and other recent launches.
- The sustainability of core margins after excluding amortization, impairments, restructuring, acquisitions, divestments and other significant items.
- Changes in net debt and liquidity after share repurchases, dividends, debt maturities, acquisitions and potential R&D milestone payments.
- Developments in major legal, regulatory, product-liability, antitrust and pricing matters, including the potential financial impact not reflected in current provisions.
- The filing’s audited financial statements and subsequent Form 6-K disclosures for any standalone fourth-quarter results or updated 2023 guidance.