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Novartis Fourth-Quarter Net Falls; Vaccine Sales Drop

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Novartis Fourth-Quarter Net Falls
The Novartis AG headquarters in Basel. Photographer: Adrian Moser/Bloomberg

Jan. 27 (Bloomberg) -- Novartis AG’s fourth-quarter profit fell 6 percent as sales of influenza vaccine declined following the end of the flu pandemic and the company wrote down the value of a cancer drug. The stock fell the most in almost seven months.

Net income dropped to $2.17 billion from $2.31 billion a year earlier, the Basel, Switzerland-based company said in a statement today. Profit was hurt by $789 million of one-time costs, including for restructurings in the U.S. and Germany, the company said. Excluding some items, earnings per share of $1.14 missed the average analyst estimate of $1.19 compiled by Bloomberg in the past month.

“This is a disappointing miss on the operating level,” Justin Smith, an analyst at MF Global UK Ltd. in London said in a telephone interview today. “Vaccines were disappointing, the pharma margin was disappointing.” He recommends selling Novartis shares.

Novartis bought a majority stake in eye-care company Alcon Inc. in August, and agreed in December to pay $12.9 billion for the remaining publicly traded stock. Chief Executive Officer Joe Jimenez is completing a redesign started by his predecessor, Daniel Vasella. Novartis is looking to Alcon, the Sandoz generics unit, vaccine sales and over-the-counter products to lessen the company’s dependence on prescription drugs.

Sales increased 10 percent to $14.2 billion, including $1.8 billion in revenue from Alcon.

Price Reductions

Sales growth this year will be “around the double-digit mark” at constant currency rates, the company said. Growth in pharmaceuticals revenue will be in the low to mid single digits, hurt by price reductions in 2010, the “full impact of health-care reform in the U.S.” and generic competition. Novartis doesn’t forecast earnings.

Novartis fell 1.30 Swiss francs, or 2.4 percent, to 53.15 francs at the close of trading in Zurich. It was the stock’s biggest drop in almost a month. Before today, the stock had lost 0.8 percent in the past year including reinvested dividends, compared with a 7.1 percent return for the Bloomberg Europe Pharmaceutical Index.

Sales of vaccines and diagnostics fell 74 percent to $361 million. The company had $1 billion of pandemic vaccine sales in the year-earlier quarter that weren’t repeated in 2010.

Novartis wrote down the value of the ASA404 experimental cancer medicine, which failed a clinical trial last year. Besides that $120 million charge, the company also had expenses of $85 million in the U.S. to cut sales jobs, $49 million in costs for cutbacks at Sandoz in Germany and a $372 million revaluation of Alcon’s inventory.

New Products

Novartis is counting on new products including blood-pressure drugs Tekturna and Exforge as well as the cancer treatment Tasigna to help replace revenue lost when the company’s best-sellers, Diovan for hypertension and Gleevec for leukemia, start to lose U.S. patent protection in 2012 and 2015, respectively. The oral multiple sclerosis pill Gilenya, approved in the U.S. last year, gained European backing last week and may generate as much as $5.3 billion a year for Novartis by 2016, according to Fabian Wenner, a UBS AG analyst.

“This year, the most important products will be Tasigna, Tekturna, Exforge and hopefully Gilenya,” said Wenner. “This is a complete changing of the guard.” He recommends buying Novartis shares.

Prescription drug sales rose 3 percent to $8 billion. Sales of Gilenya are going well, said Trevor Mundel, the company’s head of development. Gilenya’s sales of $13 million since it was introduced in October are “above expectations,” said Dhavalkumar Patel, who heads the company’s autoimmune research. Mundel and Patel spoke at an event for journalists last night in Basel.

Diovan Drops

Diovan generated $1.58 billion in revenue, a drop of 2 percent, and sales of Gleevec rose 5 percent to $1.1 billion.

Doctors wrote fewer Diovan prescriptions in the fourth quarter as Teva Pharmaceutical Industries Ltd.’s generic version of Merck & Co.’s competing Cozaar hypertension pill entered the market, according to Jeffrey Holford of Jefferies International Ltd.

Novartis’s consumer-health unit, which includes products such as the Theraflu cold medication and Bufferin aspirin, had revenue of $1.6 billion, unchanged from a year earlier. Revenue from the Sandoz generic-drug business climbed 10 percent to $2.4 billion, helped by new products including copies of Eli Lilly & Co.’s Gemzar cancer treatment and Sanofi-Aventis SA’s Lovenox blood thinner.

Novartis will pay a 2010 dividend of 2.20 francs a share, up from 5 percent from a year earlier, for the 14th straight increase.

To contact the reporter on this story: Eva von Schaper in Munich at evonschaper@bloomberg.net.

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

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