Novartis Profit Drops on Emerging-Market Currencies, Franc

Jan 29, 2014 12:11 pm ET

(Updates with closing share price in fifth paragraph.)

Jan. 29 (Bloomberg) -- Novartis AG, Europe’s biggest drugmaker by sales, said fourth-quarter profit fell as currencies in emerging markets weakened against the dollar.

Fourth-quarter earnings excluding some items fell 3 percent to $2.96 billion, or $1.20 a share, from $3.04 billion, or $1.24, a year earlier, the company said in a statement today. Novartis, which is based in Basel, Switzerland, and reports earnings in dollars, also was hurt by a strong Swiss franc. Analysts predicted profit of $1.21 a share, according to the average estimate compiled by Bloomberg.

Products introduced since 2008, or which have patents extending to 2017, accounted for 40 percent of pharmaceutical sales in the quarter, up from 33 percent a year earlier. Novartis needs such growth to replace income from its best- selling drugs, the Diovan blood-pressure treatment and cancer medicine Gleevec, which are starting to lose patent protection.

“If you strip out currency effects, Novartis absolutely had a good quarter,” Odile Rundquist, an analyst at Helvea SA in Geneva, said in a telephone interview. Excluding currencies, profit excluding some items and sales both grew by 4 percent.

Novartis was unchanged at 71.30 Swiss francs at the close of trading in Zurich today. The stock returned 18 percent including reinvested dividends in the year through yesterday, compared with a 21 percent return for the Bloomberg Europe Pharmaceutical Index.

New Products

Sales rose 2 percent to $15 billion. “What was driving this growth was our innovation and our new products, and the best part was that all of the divisions grew,” Chief Executive Officer Joe Jimenez said in an interview on Bloomberg Television.

Sales of Gilenya, a multiple sclerosis drug, increased by 51 percent, and Afinitor revenue rose 32 percent.

Sales this year will increase by a low to mid-single-digit percentage in constant currencies, and core operating income will rise more than sales, assuming Diovan faces generic competition in the U.S. at the beginning of the second quarter, the company said today.

Sales in the pharmaceutical division rose 1 percent to $8.3 billion, as the company sold larger volumes of drugs. Novartis is benefiting from Ranbaxy Laboratories Ltd.’s inability to begin selling a copy of the Diovan blood-pressure treatment in the U.S. Regulators have forbidden the company from importing drug ingredients to the U.S. from four plants because of quality control issues.

Eye Care

Revenue at the Alcon eye-care unit climbed 3 percent to $2.7 billion on new products. Sandoz, the business that sells generic drugs, had a 1 percent sales increase to $2.4 billion.

Sales at the vaccines unit rose 4 percent to $655 million driven by flu shots, pre-pandemic vaccines and the meningitis shot Menveo.

Revenue from consumer health, which houses both animal health and non-prescription drugs, climbed 8 percent as it re- introduced products after manufacturing problems in the U.S.

Novartis also has a review of some of its businesses under way. The company has three units with global scale, Jimenez has said: pharmaceuticals, Alcon and the generics arm Sandoz. Novartis will consider options for its other businesses, he has said.

Animal Health

The drugmaker has identified its animal-health business as a top candidate for a sale, people familiar with the matter said in November. Novartis is also considering selling its over-the- counter medicines unit and the vaccines operation, they said then, although no final decision on those assets had been made.

Jimenez said today he hopes the review doesn’t last past the summer. He reiterated that all options are open, including “unique structures” such as joint ventures.

The company this month sold its blood-transfusion diagnostics unit to Grifols SA for $1.68 billion as part of the review.

European regulators last week declined to recommend for approval one of the experimental products Novartis needs to drive sales, the potentially best-selling heart drug serelaxin. The company said it plans to refile the application to seek approval that’s conditional on a further study of the drug, which is under way.

--Editors: Phil Serafino, Marthe Fourcade