Novartis Sees Return to Growth This Year With New Chief

Updated on
  • Core profit to grow by mid-to-high single digits in 2018
  • New CEO sees effort to ‘pivot even harder’ toward innovation

Boxes of tablets, produced by Novartis AG, sit on a pharmacy counter.

Photographer: Chris Ratcliffe/Bloomberg

Novartis AG starts 2018 with a new chief executive and a rosier outlook, projecting a return to growth after three lackluster years.

The percentage increase in earnings excluding some expenses this year will probably be in the mid-to-high single digits, after showing no change in 2017 at constant currencies, the Basel, Switzerland-based drugmaker said in a statement Wednesday.

Vasant Narasimhan

Photographer: Michele Limina/Bloomberg

Novartis, whose Chief Executive Officer Joe Jimenez will hand the reins to Vas Narasimhan next week, is counting on new medicines -- heart drug Entresto, psoriasis treatment Cosentyx and Kisqali for breast cancer -- to buoy sales and counter the erosion to its aging blockbuster medicine Gleevec from cheaper copycats. The company also released a cutting-edge cancer treatment called Kymriah for a deadly form of leukemia in August, with a price tag of $475,000.

Amid increasing competition and pressure on prices, Novartis will “pivot even harder to breakthrough innovation” to demonstrate the value of its therapies to insurers, health systems and patients and will rely more on technology and data, Narasimhan told reporters in Basel. 

“What we’re increasingly going to do is take a harder look at the pipeline and ask ourselves, ‘Is this first-in-class or very close to first-in-class where we can be competitive?’ ” he said. “If not, why are we doing it?”

Novartis shares rose 2.7 percent to 85.82 Swiss francs at 2 p.m. in Zurich, the most since last June. The stock has gained about 7 percent in the past six months, compared with a 2.8 percent drop for crosstown rival Roche Holding AG.

Narasimhan, who climbed through the ranks to become global head of drug development, will initially receive up to 8.9 million francs ($9.3 million) in annual compensation, including a salary of 1.55 million francs, according to the company’s annual report. That’s 26 percent less than Jimenez’s pay, reflecting that it’s Narasimhan’s first job as CEO, Novartis said.

Earnings excluding some items climbed 7 percent to $3.2 billion in the fourth quarter, compared with the $3.1 billion average of analysts’ estimates compiled by Bloomberg. Sales rose 5 percent to $12.9 billion, compared with analysts’ estimate of $12.7 billion.

The report shows price pressure on generics hurt sales at the Sandoz unit at the end of 2017 and will probably continue to do so over the next year. The percentage increase for overall sales will probably be in the low-to-mid single digits in 2018, with a possible decline at Sandoz, Novartis said.

New Dawn

The company reiterated that a decision on whether to spin off the Alcon eye-care division, whose sales grew by 8 percent last quarter, probably won’t come before the first half of 2019. Alcon needs to show sales and margin improvements for multiple quarters before Novartis can reach a decision about its future, the company said.

Sales at the Sandoz generics unit decreased last year amid pressure in the U.S., where the business makes almost a third of its revenue. The company is broadening a review of its U.S. generics business in a move that may lead to more divestitures beyond a potential sale of its skin-care treatments, people familiar with the matter said earlier this month.

Sales of Cosentyx, the psoriasis drug, rose 53 percent to $615 million, less than the $623 million analysts had forecast for the quarter. Entresto climbed to $185 million, compared with analysts’ estimates of $151 million in sales.

“Pharma performance underlines that the division has exited the shadow of Gleevec and enters a new dawn of growth,” Tim Anderson, an analyst at Sanford C. Bernstein & Co. in New York, wrote in a note to clients.

(Updates with incoming CEO’s comments in fourth paragraph.)
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