Novartis Posts 6.8% Rise in Net
By ANITA GREIL
April 21, 2008 1:13 a.m.
ZURICH -- Novartis AG Monday reported a higher-than-expected 6.8% increase in first quarter net profit, driven by brisk sales of its profitable flagship brands Diovan and Gleevec and benefiting from a cost-savings program.
Novartis, based in Basel, said net profit attributable to shareholders rose to $2.32 billion in the three months ended March 31 from $2.17 billion in the year ago period. Net income from continuing operations -- the company had sold its Gerber baby-food brand and its medical-nutrition business to Nestle SA last year -- rose 10% to $2.31 billion, beating analysts' estimates of a decline.
Novartis reiterated its outlook, saying it expects net sales to expand at a mid-single digit pace, with prescription drugs rising at a low-single-digit rate. The forecast is given in the local currencies of the countries where the products are sold. Novartis also expects to report record earnings in 2008.
Novartis benefited from the weak dollar. Sales were flat in local currencies, but due to the favorable currency effect, the company was able to report an 8.6% increase in revenue to $9.91 billion, driven by double-digit sales growth of generic medicines, prescription-free medicines, drugs for animals, and contact lenses.
This helped offset a decline in prescription-drug sales, led by a 19% drop in the U.S., where sales were hit by competition from cheaper generics for several products and the suspension of one product.
The Swiss drugmaker's two best-selling products, hypertension drug Diovan, and cancer medicine Gleevec, continued to do well, rising 19% to $1.37 billion and 32% to $888 million, respectively. Products launched last year and in late 2006 contributed more than $500 million of net sales in the first quarter, Novartis said. Still, some, such as hypertension drug Tekturna, a potential successor to Diovan when this drug will lose patent protection in 2012, fell short of analysts expectations, generating $28 million in the first quarter. The drug was developed jointly with Speedel Holding AG, a small Swiss pharmaceutical company, formed by a former Novartis researcher.
"I am especially pleased with the dynamic growth of Vaccines and Diagnostics and the new products in pharmaceuticals," said Chief Executive Daniel Vasella in a statement.
Novartis is probably one of the most aggressive among its peers in embracing other sources of revenue at a time when the prescription drugs business is facing a myriad of problems, such as competition from generics, meager pipelines of new drugs, and a U.S. regulator that's become more demanding on safety and efficacy requirements of drugs submitted for approval.
The Swiss company has over the past few years made major acquisitions to diversify into generics, vaccines, and most recently into eye-care through the planned purchase of Alcon Inc. from Nestle in a two-step deal that eventually will cost it up to $39 billion.
Novartis also offered an update on products in development, saying plans to submit experimental cancer drug everolimus for regulatory approval in the second half, and multiple sclerosis pill FTY720 in 2009, but doesn't expect to resubmit diabetes drug Galvus for U.S. approval before 2010.
"Our pipeline is also progressing well with promising results in innovative treatments in several areas, including cancer and multiple sclerosis," Mr. Vasella said.
Novartis has completed recruitment for a late-stage trial of its meningitis vaccine Menveo, and has started late-stage testing for a separate vaccine that aims to protect against the B type of meningococcal meningitis. There is no vaccine currently for this strain, which is the predominant one in Europe, but is also widespread in the U.S. If this vaccine succeeds in human testing and gains regulatory approval, it may reap as much as $3 billion in annual sales in its best year, Morgan Stanley analysts said in a recent report.
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