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

(1) Brand name awaiting approval by regulatory authorities

(2) Tekturna replaces Rasilez as the proposed global brand name for aliskiren

Corporate

Financial income, net

Net financial income for the first nine months was USD 50 million compared to USD 124 million in the year-ago period, reflecting the sharp drop of USD 3.2 billion in net liquidity in the first nine months as a result of recent acquisitions. The Group had at September 30, 2006, net debt of USD 0.7 billion compared to net liquidity of USD 1.0 billion at the corresponding date in 2005. Net financial income in the first nine months reflects good currency and interest rate management.

Income from associated companies

Associated companies contributed net income of USD 193 million in the first nine months of 2006 against USD 126 million in the year-ago period. In the third quarter, associated companies had income of USD 88 million, an increase from USD 65 million in the same period in 2005, fully the result of a higher profit contribution from the Roche investment. This represented an anticipated share of USD 115 million of Roche's net income for the third quarter, which was partially reduced by charges of USD 27 million for the amortization of intangible assets.

Balance sheet

The Group's equity increased by USD 5.4 billion to USD 38.6 billion at September 30, 2006, compared with USD 33.2 billion at the end of 2005. This increase came from net income of USD 5.5 billion in the first nine months of 2006, an upward revaluation of USD 0.6 billion of the initial Chiron minority stake and increased equity from share-based compensation of USD 0.4 billion as well as translation gains of USD 0.9 billion. This was partially offset by the dividend payment of USD 2.0 billion.

Net debt amounted to USD 0.7 billion at September 30, 2006, compared to net liquidity of USD 2.5 billion at the beginning of the year. The debt/equity ratio improved to 0.24:1 at September 30 from 0.25:1 at December 31, 2005.

Total non-current assets increased by USD 9.6 billion in the first nine months, principally due to goodwill, other intangible assets and property, plant & equipment arising from the Chiron and NeuTec acquisitions.

Novartis did not repurchase any shares during the first nine months of 2006 through its share repurchase program via a second trading line on the SWX Swiss Exchange.

Novartis is one of the few non-financial services companies worldwide to have attained the highest credit ratings from Standard & Poor's, Moody's and Fitch, the three benchmark rating agencies. S&P has rated Novartis as AAA for long-term maturities and as A1 for short-term maturities. Moody's has rated the Group as Aaa and P1, respectively, while Fitch has rated Novartis as AAA for long-term maturities and as F1 for short-term maturities.

Cash flow

Cash flow from operating activities increased by USD 0.6 billion in the first nine months of 2006 to USD 6.4 billion, reflecting the business expansion and strict management of working capital by the divisions. Cash flow used for investing activities includes the net investment of USD 4.0 billion to acquire Chiron, USD 0.6 billion to acquire NeuTec and capital expenditures of USD 1.1 billion as well as proceeds of USD 0.2 billion from the Nutrition & Santé divestment. Free cash flow after dividends was USD 2.7 billion for the first nine months of 2006, a decline of USD 0.4 billion from the year-ago period as lower net proceeds from asset disposals as well as higher net purchases of intangible assets and capital expenditures offset the improvement in operating cash flow.