The acquisition of GSK oncology products would strengthen the Pharmaceuticals Division and Oncology business, leveraging its development and commercial capabilities. The creation of a world-leading consumer healthcare business with GSK would offer scale, complementary portfolios and complementary geographic footprint. The divestiture of Novartis Vaccines (excluding flu) to GSK would maximize the value of the Vaccines pipeline, including Bexsero, and create a global vaccines leader. The divestiture of the Animal Health Division to Lilly would recognize the full value of the business and an appropriate share of expected synergies, while creating a global animal health leader under Lilly's ownership.
These transactions would provide a strong financial proposition for Novartis.
All transactions are subject to closing conditions, including anti-trust approvals, and the GSK transaction is subject to approval by GSK shareholders. The transaction with Lilly is expected to close by the end of the first quarter of 2015 and the transaction with GSK is expected to close during the first half of 2015.
Novartis' group net sales increased 1% (+3% cc) to USD 14.0 billion in the first quarter. Currency had a negative impact of 2 percentage points, mainly due to the weakened yen and weakening emerging market currencies against the US dollar, partly offset by a stronger euro. Growth products contributed USD 4.3 billion or 31% of Group net sales, up 17% (USD) over the prior-year quarter.
Group operating income increased 22% (+31% cc) to USD 3.5 billion, mainly due to a USD 0.9 billion exceptional gain from the divestment of the blood transfusion diagnostics unit to Grifols S.A. The negative currency impact of 9 percentage points was mainly due to the further strengthening of the Swiss franc and weakening of the yen and emerging market currencies in the first quarter. Operating income margin increased by 4.4 percentage points to 24.9% of net sales. The adjustments made to Group operating income to arrive at core operating income amounted to USD 0.2 billion (2013: USD 0.8 billion).
Core operating income was USD 3.7 billion (0%, +6% cc). Core operating income margin in constant currencies increased 0.9 percentage points due to improved core margins in Pharmaceuticals and lower corporate costs; currency had a negative impact of 1.1 percentage points, resulting in a net decline of 0.2 percentage points to 26.1% of net sales.
Group net income of USD 3.0 billion was up 24% in reported terms, and up 30% in constant currencies, largely due to higher operating income driven by the exceptional divestment gain and higher income from associated companies, offset by higher net financial expenses and higher income tax due to the exceptional divestment gain. EPS was up 25% (+30% cc) to USD 1.21 in line with net income.
Group core net income of USD 3.2 billion was stable in reported terms, but up 6% in constant currencies, from core operating income performance and higher income from associated companies, offset by higher net financial expenses. Core EPS increased 1% (+6% cc) to USD 1.31, in line with core net income.
Commenting on the results, Joseph Jimenez, CEO of Novartis, said: "Novartis delivered a solid quarter, with all divisions contributing to growth. We made progress in innovation, including EU and US approval of Xolair in chronic spontaneous urticaria and significant milestones for Bexsero. The transformational deals announced on Tuesday position the company for future success based on our sharpened focus, innovation power and financial strength."
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