Novartis Quarterly Profit Drops as Diovan, OTC Sales Slump

Novartis AG chief executive officer Joe Jimenez
Joe Jimenez, chief executive officer of Novartis AG, is facing the loss of billions in revenue as the company’s top-selling drug, Diovan, loses patent protection this year. Photographer: Michele Tantussi/Bloomberg

Novartis AG’s first-quarter profit dropped 8 percent on generic competition and manufacturing glitches at a consumer-health products factory in Nebraska.

Net income excluding some costs fell to $3.09 billion, or $1.27 a share, from $3.4 billion, or $1.41 a share, a year earlier, the Basel, Switzerland-based company said in a statement today. Analysts predicted profit of $1.28 a share, the average of 10 estimates compiled by Bloomberg.

Chief Executive Officer Joe Jimenez is facing the loss of billions in revenue as the company’s top-selling drug, Diovan, loses patent protection this year. The company, Europe’s biggest drugmaker, bought the Alcon eye-care business and has introduced new medicines such as Gilenya, the first pill for multiple sclerosis, to offset the losses.

“We expected a challenging quarter, and we delivered in line with our expectations,” Jimenez said on a conference call with reporters.

Sales, which fell 2 percent to $13.7 billion, were hurt by the entry of generic forms of Diovan in Europe. The drug loses U.S. patent protection in September. The company’s own generics business, Sandoz, also lost exclusivity on products including a copy of Sanofi’s blood-thinner Lovenox.

Stock Drop

Net income according to generally accepted accounting principles, which includes one-time charges, fell 18 percent to $2.3 billion.

The company repeated that it expects sales this year to be in line with 2011’s at constant exchange rates, while its core operating margin will be “slightly below” last year’s.

Novartis fell 1.5 percent to 50.15 Swiss francs in Zurich. The stock has gained 2.9 percent this year including reinvested dividends, compared with a 20 percent return for the Bloomberg Europe Pharmaceuticals Index of 18 companies.

“Nobody wants to own a declining earnings stream when it declines for over a year,” Tim Race, an analyst with Deutsche Bank AG in London, said in a telephone interview today. “With Novartis you’ve got huge patent hits with Diovan, particularly, happening now, and it doesn’t really end for another five or six quarters.” Race rates the stock buy.

Consumer Health

Consumer-health sales slumped 20 percent to $932 million. The company suspended production at the Lincoln, Nebraska, factory in January and recalled some products because they may have contained broken or stray tablets from other medicines. The head of the unit, Naomi Kelman, quit less than two months later and was replaced by Brian McNamara, an executive in the division.

Novartis said it made progress in addressing the U.S. Food and Drug Administration’s concerns at the Lincoln plant, which produces Excedrin headache pills and NoDoz stimulant and accounts for about 25 percent of over-the-counter sales. The company expects a “limited portfolio of products” to ship in the second half of year and has engaged external manufacturers to help maintain supply, Jimenez said.

“That’s probably more cautious than I was hoping for, but not too dissimilar from expectations,” Race said.

The company also took a $147 million charge related to restructuring its pharmaceutical division in the U.S. after halving its expectations for sales of the hypertension drug Tekturna. Novartis in December scrapped a test of the medicine among patients with diabetes because some of them had more strokes and kidney complications.

Diovan Slumps

Sales of the Diovan blood-pressure pill fell 15 percent to $1.2 billion, in line with analysts’ forecasts, because of the competition from cheaper copies. Novartis will lose about $2.5 billion of sales to generic competition this year, including $1.5 billion of Diovan revenue, Jimenez said in January.

Pharmaceutical sales increased 2 percent to $7.8 billion, lifted by new products including the multiple-sclerosis drug Gilenya. “It’s clear that our new product launches are more than offsetting the beginning of the Diovan patent expiration,” Jimenez said on the call.

Gilenya sales jumped to $247 million, beating the average analyst estimate of $215 million. Sales were $59 million a year earlier. Novartis expects revenue from the drug to spur growth after U.S. and European regulators completed a three-month review last week triggered by the death of 15 patients. The company said uncertainty over the review had held back prescriptions.

Revenue from the eye drug Lucentis rose 28 percent to $567 million, surpassing the average analyst forecast of $547 million.

Smoker’s Cough Drug

A trial of an experimental treatment for smoker’s cough showed the once-daily drug, called QVA149, improved the lung function of patients more than GlaxoSmithKline Plc’s twice-daily Seretide, also marketed as Advair. The trial is the fourth of 10 studies of the inhaled treatment and Novartis expects to apply for U.S. regulatory approval of the drug by the end of 2014.

Novartis filed applications in the U.S., Europe and Japan for approval of Gleevec for use in patients with pulmonary arterial hypertension. The treatment would compete with Actelion Ltd.’s Tracleer and Gilead Sciences Inc.’s Letairis. Gleevec, also sold as Glivec, has marketing clearance for certain forms of cancer and had $1.13 billion in sales in the quarter.

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