Swiss pharmaceutical giant
Novartis
(NVS
) reported second quarter 2012 earnings per share of $1.12, down 1%
from the year-ago period. Second quarter 2012 core earnings per
share came in at $1.38, down 7% from the year-ago period. Core
earnings, however, were above the Zacks Consensus Estimate $1.30
per share. Lower revenues led to the year-over-year decline in
earnings.
Second quarter revenues of $14.3 billion, while in-line with the
Zacks Consensus Estimate, declined 4% from the year-ago period.
While the Alcon and Vaccines and Diagnostics divisions recorded
growth in sales, other divisions like Pharmaceuticals, Sandoz and
Consumer Health recorded a decline in sales. Foreign exchange
negatively impacted second quarter revenues by 5%.
Quarter in Detail
Novartis reported that Pharmaceuticals division sales declined
1% to $8.3 billion in the reported quarter. Revenues were impacted
by the Diovan patent expiration in the EU, generic competition for
key products and negative pricing. We note that Diovan is slated to
lose exclusivity in the US in September 2012.
Products like Lucentis, Tasigna, Afinitor, Gilenya and Galvus
continued to perform well. Newly launched products accounted for
34% of the total sales recorded by the Pharmaceutical division
during the second quarter of 2012.
Gilenya could, however, face competition from
Biogen Idec's
(
BIIB
) oral MS candidate BG-12, which is currently under regulatory
review in the EU and US.
Meanwhile, the Committee for Medicinal Products for Human Use
(CHMP) recently voted in favor of using Afinitor in advanced breast
cancer patients. Novartis expects to gain FDA approval shortly as
well. Approval for this indication could boost Afinitor sales
significantly. Sales could exceed a billion dollars.
The Alcon Division recorded revenues of $2.6 billion in the
quarter, up 1% driven by strong sales of cataract products in the
US and emerging markets.
Sales from the Sandoz division declined 13% to $2.1 billion
mainly due to price erosion of 7 percentage points. Overall volume
growth was flat as double-digit growth in Western, Central and
Eastern Europe, Asia and biosimilars was offset by a decline in
Germany. Performance was also affected by lower sales of Sandoz's
generic version of
Sanofi's
(
SNY
) Lovenox.
Sales at the Vaccines and Diagnostics division grew 17% from the
year-ago quarter to $349 million. Meningitis vaccine Menveo was a
major contributor to growth.
Consumer Health sales at Novartis were down 24% from the
prior-year quarter to $904 million. Sales continued to be affected
by supply shortages due to the suspension of operations at
Novartis' Lincoln facility in Nebraska. However, Novartis resumed
production of both over-the-counter (OTC) and animal health
products and expects to start shipping a limited portfolio in the
fourth quarter 2012.
2012 Guidance Reaffirmed
Novartis reaffirmed its 2012 sales guidance at constant currency
and expects it to be in line with 2011 levels. Sales could be
negatively impacted by about 4% due to the appreciation of the
dollar against other currencies, assuming the June average exchange
rates prevail.
Our Recommendation
Currently, we have a Neutral recommendation on Novartis. The
company carries a Zacks #3 Rank (Hold rating) in the short run.
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