Novartis income slides by 45%

Novartis AG, Europe's third-largest drugmaker, reported fourth-quarter profit that missed analysts' estimates because of generic competition to the Lotrel heart medicine and the Lamisil antifungal treatment.

Net income fell 45 percent to $904 million and sales at the Basel, Switzerland-based company rose at the slowest pace in five quarters. Novartis will buy back 10 billion Swiss francs ($9.1 billion) in shares, the most in its 12-year history.

Novartis had its steepest decline since March 2004 after Chief Executive Officer Daniel Vasella said yesterday the company won't grow faster than its peers again until the fourth quarter. Sales of five products, including the Famvir herpes medicine and the irritable bowel treatment Zelnorm fell by almost half to $1.7 billion last year from 2006 after the medicines either faced generic competition or were pulled from the market.

"The share buyback is nice from an investor's point of view but why Vasella isn't putting more money into R&D beats me," said Joerg de Vries-Hippen, who oversees about $60 billion, including Novartis shares, as chief investment officer for European stocks at AllianzGlobal Investors in Frankfurt. "I can't see how things are to improve soon either."

Cheaper copies in the US hurt the company's largest unit, pharmaceuticals, where sales growth slowed to 1.7 percent in the quarter, compared with 6.4 percent over the whole year.

Sales of Lotrel fell 75 percent to $88 million in the quarter, while Lamisil dropped 71 percent to $66 million. Revenue from Trileptal for epileptic seizures declined 67 percent to $48 million.

"The main disappointment comes from pharmaceuticals," Karl Heinz Koch, a Zurich-based analyst at Bank Vontobel said in a note to investors. "The underlying profitability is lower-than-expected on the generic loss of legendary products and higher- than-expected investments in launch products."

Novartis shares declined 1.70 francs, or 2.8 percent, to 59.55 Swiss francs at 12:13 pm in Zurich after dropping as much as 3.9 percent. The Swiss drugmaker's shares fell 12 percent in 2007.

The company repeated that it expects the first half of 2008 to be affected by an "ongoing negative impact" from the US drug unit. Vasella expects a "new growth cycle" to start in the second half of 2008.

"I would say in pharmaceuticals, the first quarter will be negative growth, the second quarter will be quite neutral, the third clearly toward growth and the fourth should be dynamic, meaning above market," Vasella said.

Slowing sales pushed Novartis to cut 2,500 jobs over the next two years to save $1.6 billion annually by 2010. The company, which also makes the Gleevec leukemia medicine, had one-time costs of $444 million from the cuts.

Net income fell to 41 cents a share from $1.65 billion, or 67 cents, a year earlier.

An earlier-than-usual shipment of flu shots meant sales at the vaccines unit fell 13 percent in the fourth quarter. Sales at Sandoz, the company's generic drugs unit, rose 19 percent.

Agencies

(China Daily 01/18/2008 page17)