Novartis Profit Beats Estimates as New-Drug Sales Climb

Novartis AG CEO Joseph 'Joe' Jimenez
Joseph 'Joe' Jimenez, chief executive officer of Novartis AG. Photographer: Andrey Rudakov/Bloomberg

Novartis AG reported second-quarter profit that declined less than analysts forecast, helped by increasing sales of new products such as the Gilenya treatment for multiple sclerosis and the Afinitor cancer drug.

Earnings excluding some costs fell 6 percent to $3.36 billion, or $1.38 a share, from $3.56 billion, or $1.48 a year ago, the Basel, Switzerland-based company said in a statement today. Analysts predicted profit of $1.33 a share, the average of 14 estimates compiled by Bloomberg. Earnings fell because of competition from generic drugs and the strength of the dollar.

Chief Executive Officer Joe Jimenez is banking on new treatments to make up for declining sales of Diovan, for blood pressure, and Gleevec, a cancer treatment. The two drugs, the company’s biggest-selling products, generated revenue of $10 billion last year and may reap just $5.4 billion by 2015 after losing patent protection.

“Our pipeline is delivering,” Jimenez said on a call with reporters today. “Twelve months from now we will have most of the Diovan patent expiration in our base and the company will return to a growth trajectory that is consistent with its underlying growth rate today.”

Novartis, Europe’s largest drugmaker by revenue, said it’s “on track” to achieve its forecast for sales this year to be in line with 2011 at constant exchange rates, while the company’s core operating margin will be “slightly below” last year’s.

Dollar Drag

Novartis rose 1.7 percent to 56 Swiss francs in Zurich, giving the company a market value of 152 billion francs ($155 billion). The stock has returned 9 percent this year including reinvested dividends, compared with a 15 percent return for the Bloomberg Europe Pharmaceuticals Index of 19 companies.

Sales fell 4 percent to $14.3 billion, meeting the average analyst forecast. The company gets about a third of revenue from Europe, and reports earnings in dollars. The U.S. currency’s strength against the euro, franc and British pound since last year’s second quarter stripped 5 percentage points from sales, Novartis said.

The dollar index, which reflects the value of the dollar against major world currencies, was on average 8.1 percent higher in the second quarter than a year earlier.

If average exchange rates for June persisted for the rest of the year, 2012 sales would be cut by about 4 percent and operating income would be reduced 3 percent to 4 percent, Novartis said. The company had previously said it expected an impact from currencies of 2 to 3 percent for both sales and operating income.

Diovan Plunges

Revenue in the pharmaceutical division fell 1 percent to $8.3 billion. Excluding Diovan sales, which dropped 16 percent to $1.3 billion after it started facing competition from cheaper copycat pills in Europe in November, the division grew 8 percent. The pill loses U.S. patent protection in September.

Sales of Gilenya were $283 million, compared with $79 million a year ago, and are on track to exceed $1 billion this year, Jimenez said. The drug was approved in the U.S. in 2010 as the first oral treatment for multiple sclerosis, and cleared for sale in Europe in March 2011. Revenue from the eye treatment Lucentis advanced 12 percent to $604 million.

Afinitor, approved to treat cancers of the kidney and pancreas, climbed 72 percent to $175 million. European regulators recommended approval for Afinitor in breast cancer last month and the company expects U.S. approval in the “near term,” David Epstein, head of the pharmaceutical division, said on a call with analysts today. The drug may reap “well above $1 billion” in sales for breast cancer alone, Epstein said.

Extra Spending

Novartis plans to spend as much as $300 million this year to increase sales of new drugs including Afinitor, Jimenez said.

“I just feel like it would be a mistake not to take advantage of what we have in front of us,” he said on the analyst call. “Not everybody in this industry has this level of innovation.”

Sales of consumer-health products, which include the NoDoz stimulant and Excedrin headache pills, plunged 24 percent to $904 million. The company in January temporarily closed a factory in Lincoln, Nebraska, because of quality concerns.

‘Prolonged Difficulties’

Novartis expects to resume sales in October of Excedrin, the athlete’s foot gel Lamisil, and Sentinel, an anti-flea product for dogs. Those three products account for about 30 percent of $1 billion in annual sales that the plant represents, said Brian McNamara, the head of the consumer products division.

The “prolonged difficulties at the Lincoln plant are disappointing,” Alistair Campbell, an analyst at Berenberg Bank in London, said in an e-mail today. There’s “no room to raise guidance” because of the continuing problems, he said.

Alcon, the eye health unit that is Novartis’s second-biggest division, reported sales of $2.6 billion, up 1 percent. Demand for allergy treatments declined because of a mild allergy season in the U.S., Novartis said.

Sales in the generic drug unit Sandoz fell 13 percent to $2.1 billion on greater competition for its version of Sanofi’s Lovenox.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE