Market Intelligence

Novartis sees 2019 growth as it sheds eyecare unit, narrows focus


By John Miller

BASEL, Switzerland, Jan 30 () - Novartis's 2019 sales and profit growth guidance disappointed investors seeking more from Chief Executive Vas Narasimhan's efforts to focus the Swiss drugmaker on high-tech medicines while shedding non-core assets.

The company sees net sales growing by a low- to mid-single-digit percentage, with core operating income up by a mid-single-digit rate, Novartis said on Wednesday.

Narasimhan, who took over last February, has unloaded an over-the-counter drugs joint venture to GlaxoSmithKline, is selling Novartis' U.S. generics pills business, and aims to spin off the Alcon eyecare unit to shareholders.

Simultaneously, he is loading up on gene and cell therapies and radioactive cancer drugs via acquisitions as he turns Novartis from a healthcare conglomerate into a more-focused prescription drugs company.

"A company of our size and with a goal to really re-imagine medicine needs to have a leading position in the next wave of therapeutics," Narasimhan told reporters.

Fourth-quarter core operating profit rose to $3.39 billion, shy of the average $3.44 billion in a poll of analysts.

Sales rose to $13.3 billion, matching the poll. Full-year sales rose 5 percent to $51.9 billion, delivering on Novartis's 2018 goal of mid-single-digit percentage growth.

A 2019 outlook devoid of fireworks left analysts underwhelmed.

"With ... 2019 guidance at the bottom end of our expectations, we hope new catalysts will emerge to support the investment case," wrote Eric Le Berrigaud of Bryan, Garnier & Co. in a note. He rates the shares "buy."

Novartis said 2018 sales of its Entresto heart failure medicine doubled to $1 billion, while revenue from psoriasis-and-arthritis medicine Cosentyx rose more than a third to $2.8 billion. It added two more $1 billion-plus "blockbusters", Promacta and skin-cancer combination Tafinlar-Mekinist, each hitting $1.2 billion.

Narasimhan is seeking bolt-on acquisitions up to $10 billion, but not deals like Bristol Myers-Squibb's$74 billion offer for Celgene this month.

"Large M&A is not our focus," Narasimhan said. "In the $5 billion-or-higher range, it tends to be more difficult to justify a premium that can create an attractive return."

Novartis booked 2018 net profit of $12.6 billion, up 64 percent, on proceeds from the joint venture disposal to Glaxo. Still, it is raising its dividend just 1.8 percent, to 2.85 Swiss francs per share, less than the 2.93 francs poll forecast.

Chief Financial Officer Harry Kirsch defended the modest hike, given Novartis does not plan to reduce its dividend next year after shedding its eyecare business.

The company's 2018 operating profit fell 5 percent to $8.2 billion, hurt by restructuring charges as it cuts 2,550 jobs in Switzerland and Britain.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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