Novartis First-Quarter Profit Little Changed on Currencies

Apr 24, 2014 12:12 pm ET

(Updates with closing stock price in sixth paragraph.)

April 24 (Bloomberg) -- Novartis AG’s first-quarter profit was little changed as weaker currencies in Japan and emerging markets weighed on sales, offsetting gains from newer products such as the Gilenya treatment for multiple sclerosis.

Earnings excluding some items totaled $3.21 billion, or $1.31 a share, compared with $3.21 billion, or $1.30, 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 $1.31 a share, according to the average of 12 estimates compiled by Bloomberg.

The results were “largely in line” with consensus estimates, Tim Anderson, an analyst at Sanford C. Bernstein & Co. in New York, wrote in a note to clients.

The results come two days after Novartis announced a series of deals that will reshape the company. The Swiss drugmaker agreed to buy GlaxoSmithKline Plc’s cancer-drug business for as much as $16 billion, sell most of its vaccines business to Glaxo for as much as $7.1 billion and sell its animal-health unit to Eli Lilly & Co. for $5.4 billion. Glaxo and Novartis also will form a consumer-health joint venture.

Newer Drugs

Sales of newer medicines -- the company’s so-called growth products, which are those introduced in 2009 or later, or which have patents extending to at least 2018 -- climbed 17 percent to $4.3 billion. They accounted for 31 percent of pharmaceutical sales in the quarter.

Novartis fell 1.9 percent to close at 74.80 francs. The stock has returned 12 percent including reinvested dividends in the past year, trailing the 14 percent gain of the Bloomberg Europe Pharmaceutical Index.

“All the divisions showed some nice sales growth,” Chief Executive Officer Joe Jimenez told reporters on a conference call today. “We’re off to a good start in the fiscal year.”

Revenue from newer treatments will help replace income from its best-selling drugs, the Diovan blood-pressure treatment and cancer medicine Gleevec, which are starting to lose patent protection.

Diovan’s patent ran out in the U.S. in 2012, but Ranbaxy Laboratories Inc., which has the exclusive right to make a copy for six months, has failed to win regulatory approval after four factories it runs in India failed U.S. inspections. Novartis twice raised its earnings estimates last year because of the lack of a Diovan generic. There are cheaper copies on the U.S. market of a combination therapy known as Diovan HCT that adds a diuretic to the drug.

Gilenya Growth

Sales rose 1 percent to $14 billion in the quarter. Analysts predicted $14.2 billion, the average of 12 estimates. Gilenya, an oral drug for multiple sclerosis, increased by 31 percent at constant exchange rates to $552 million.

Novartis reiterated that 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. The forecast now assumes Diovan could face generic competition in the U.S. at the beginning of the third quarter.

“We really don’t know when” generics for Diovan in the U.S. will come, Jimenez told reporters today.

The Swiss drugmaker also said today it cut its peak sales forecast for Afinitor as a treatment for breast cancer to about $1.5 billion to $1.7 billion a year, barring unforeseen events, given a shorter-than-anticipated duration of treatment. The previous forecast was $2 billion.

Separate Ways

Jimenez said it makes sense for Novartis and Roche Holding AG to “go their separate ways,” according to an interview in Finanz & Wirtschaft published today. Novartis owns 33 percent of its crosstown rival’s voting shares. The drugmaker doesn’t want to “simply sell the Roche share package on the market” because that wouldn’t achieve a “true” value for the stake, he said in the interview.

Separately, the company isn’t expecting other countries to follow the decision by Italy’s antitrust regulator to fine the Novartis and Roche for possible collusion to prevent the use of Roche’s Avastin cancer drug as a treatment for eye-disease.

Italy’s antitrust regulator announced on March 5 a fine of 182.5 million euros ($252 million) for the two companies. Roche and Novartis blocked distribution of Avastin in favor of a more expensive drug, Lucentis, that the two companies market jointly for an eye malady known as wet age-related macular degeneration, according to the Italian agency.

“We strongly deny that and we are appealing that fine right now in the courts,” Jimenez told reporters. “I don’t think we’re going to see this spread because we think it’s a fairly straightforward case.”

While the reorganization of Novartis is over, in addition to the planned sale of flu vaccines, the company may also sell some “tail” brands, though nothing “material,” Jimenez said on a conference call with analysts.