Novartis Delivers Dynamic Sales and Earnings Growth in the First Nine Months of 2006, Reaffirms Outlook for Record Full-Year Results

Market Wire, October, 2006

Novartis commitment to building a strong presence in human vaccines

Novartis has made significant progress in transforming the human vaccines and diagnostics activities acquired from Chiron into a strategic growth platform with dynamic potential. The pharmaceuticals unit of Chiron has been integrated into the Pharmaceuticals division, while research activities are now part of the Novartis Institutes for BioMedical Research (NIBR).

"We are committed to ensuring a reliable vaccine supply, which is critical to prevent the spread of diseases. We are investing in our business to drive innovation in the development of new vaccines including flu cell culture vaccines as well as growing our traditional flu vaccine operations," said Jörg Reinhardt, CEO of Novartis Vaccines and Diagnostics.

In August 2006, Novartis completed the first shipments of the Fluvirin influenza virus vaccine to the US for the 2006-2007 season, making Fluvirin the first injectable flu vaccine available this year. Novartis sold 14.6 million doses of Fluvirin in the 2006 third quarter and anticipates deliveries of at least 30 million Fluvirin doses to the US for the current season, an increase from 13 million in total for the previous season.

Novartis also submitted Optaflu, a cell-culture based influenza vaccine, in the third quarter for European approval. The vaccine was developed and produced at the Novartis vaccine site in Marburg, Germany. Plans were also announced in July to build a new cell culture plant in the US state of North Carolina. Cell-culture based influenza vaccines promise many advantages over egg-based production, including greater reliability and reduced production lead time that could be critical in a pandemic.

Novartis expects total annual cost synergies for the Group of USD 200 million within three years after the closing of the Chiron acquisition, with 50% expected to be achieved in the first 18 months. Given the good performance of Chiron activities following the acquisition, the currently anticipated negative impact for 2006 on net income and operating income has been reduced by USD 50 million. For the full year, Novartis now expects Chiron to have a net negative effect on operating income of USD 300-350 million, reflecting operating income in the Vaccines and Diagnostics division as well as Pharmaceuticals offset by acquisition-related charges, including integration, restructuring, inventory step-up costs and the amortization of intangibles. The negative impact on Group net income is now expected to be USD 350 million to USD 400 million, reflecting one-time charges in associated companies income and lower net financial income due to lower net liquidity.

Net sales of over USD 900 million are expected for the new Vaccines and Diagnostics division in 2006 as well as a contribution of USD 350 million (including the multiple sclerosis medicine Betaseron®) to the Pharmaceuticals division. Discussions continue on the restructuring of the collaboration with Bayer AG and Schering AG for Betaseron®, which was acquired from Chiron.