Swiss pharmaceutical giant
) reported earnings per share of $1.23 for the fourth quarter of
2011, marginally beating the Zacks Consensus Estimate of $1.22.
Earnings were also above the prior-year figure of $1.14 per share.
An unimpressive top-line was countered by higher adjusted operating
income resulting in the nominal beat.
Reported earnings were only $0.49, down 48% year over year, due
to huge exceptional and one-time charges of $1.5 billion in the
quarter. The exceptional charges related primarily to the
Tekturna/Rasilez sales decline, discontinuation of some pipeline
candidates and temporary suspension of production at the Lincoln,
Fourth quarter revenues of $14.8 billion fell short of the Zacks
Consensus Estimate of $15.0 billion mainly due to poor performance
of the Sandoz and Consumer Health segments. Foreign exchange
further affected fourth quarter revenue by 1%. Revenues were
however ahead of $14.2 billion recorded in the year-ago period.
For the full year 2011, Novartis announced earnings of $5.57 per
share, slightly below the Zacks Consensus Estimate of $5.63.
Revenues were $58.6 billion, minimally below the Zacks Consensus
Estimate of $58.8 billion. Revenues, however, grew 16% and earnings
were up 8% over the prior year.
The Fourth Quarter in Detail
Novartis operates in five segments. The financial details from
these segments are discussed below.
sales were up 4% to $8.3 billion in the quarter. Growth from volume
expansion and new product launches (accounting for 30% of
Pharmaceutical sales) was partly offset by price erosion, the
negative impact of patent expirations and product divestments.
Oncology sales growth of 1% was led by some established products
like Gleevec (up 8% to $1.2 billion) and Sandostatin (up 7% to $374
million) as well as new products like Tasigna (up 64% to $207
million) and Afinitor (up 66% to $133 million). Femara sales (down
62% to $134 million) were negatively impacted by generic
The Cardiovascular and Metabolism franchise recorded a sales
decline of 8% due to weakness in Diovan (down 16% to $1.3 billion)
and Tekturna (marketed as Rasilez outside US)(down 19% to $108
million). Novartis' blockbuster hypertension drug Diovan loses
patent expiration in the US in September 2012 and is already facing
generic erosion in the European Union (
). Diovan will greatly weigh upon Novartis' top line once its
patent expires. Tekturna sales were hit by the failure of the
ALTITUDE study. In December 2011 Novartis announced that it has
stopped the ALTITUDE study which was investigating Tekturna/
Rasilez in a high-risk population of patients with type-II diabetes
and renal impairment following recommendation from a Data
Monitoring Committee. As a result, Novartis is recommending against
use of Rasilez/Tekturna-based products in combination with an
angiotensin converting enzyme (
) inhibitor or angiotensin receptor blocker (
) in hypertensive patients with diabetes. It has ceased promotion
of any such combination medicines.
The Neuroscience and Ophthalmics franchise experienced a 33%
increase led by eye drug Lucentis (up 40% to $550 million) and new
multiple sclerosis drug Gilenya, which recorded revenues of $203
million. The respiratory franchise recorded a growth of 20%
driven by Onbrez Breezhaler (up 88% to $32 million) and Xolair (up
27% to $130 million).
Last year, Novartis completed the merger with Alcon following
which Alcon became the second largest division within Novartis. The
recorded revenue of $2.4 billion in the quarter, representing a
pro-forma growth of 6% driven by strong growth of ophthalmic
pharmaceuticals and surgical products.
, Novartis' generic arm, recorded a sales decline of 5% to $2.3
billion as growth from volume expansion was offset by price
erosion. Moreover, the generic version of
) Lovenox was down year over year, which significantly impacted
Sandoz' US retail generics and biosimilars growth. Softer pricing
resulting from increased competition affected generic Lovenox
sales. The volume growth was driven by strong performances in
France, Spain, Russia, Italy and Japan as well as from
Sales at the
Vaccines and Diagnostics
division grew 86% over the year-ago quarter to $671 million. Strong
performance of meningococcal vaccines (particularly Menveo), brisk
diagnostics sales and resolution of shipment delays (which affected
prior quarters) drove the upsurge. One time revenue from
pre-pandemic flu vaccine also boosted sales in the quarter.
sales were down 7% over the prior year to $1.1 billion due to
weakness in sales of over-the-counter (OTC) products. In early
January 2012, Novartis issued a voluntary recall for certain OTC
products in the United States, following the temporary suspension
of operations from its Lincoln, Nebraska facility which affected
OTC sales. The Animal Health division however did well in the
Novartis expects 2012 total constant currency sales to be in
line with 2011 levels. The newly launched products are expected to
make up for Diovan generic erosion, decline in Tekturna/Rasilez
sales, price erosion and ongoing issues at the Lincoln plant. The
Lincoln plant would resume shipments in mid-2012. Management
expects to lose about $1.2 billion in Diovan sales in 2012. This
combined with the Femara patent expiration will affect
Pharmaceuticals revenue by about $2.6 billion. Moreover, Tekturna/
Rasilez sales are forecast to be reduced to half of what they are
Novartis estimates a year-over-year decline in core operating
margins (in constant currencies) in 2012 due to pricing pressure,
generic competition and the suspension of operations at
Currently, we have a Neutral recommendation on Novartis. The
company carries a Zacks #3 Rank ("Hold" rating) in the short run.
Though pleased with Novartis' wide range of products and its
business diversity, we prefer to remain on the sidelines in the
long term due to the imminent patent cliff faced by the
NOVARTIS AG-ADR (
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