IHS Global Insight Perspective | |
Significance | Novartis has reported an 8% y/y rise to US$10.5 billion in second-quarter sales, but when converted into U.S. dollars this reverted to a 2% y/y drop. |
Implications | Currency effects continue to plague Novartis's results in the second quarter, although sales of new products provided a boost for the Pharmaceutical division. |
Outlook | Novartis has consequently raised its full-year sales outlook for the Pharmaceutical division, but has warned that profits risk being wiped out by currency effects as the global economic downturn continues. The group has a well-stocked late-stage pipeline, and organic growth looks assured once the economic climate stabilises. |
Swiss pharmaceutical company Novartis rallied slightly in the second quarter, but continued to be stung by sales made in weaker currencies being converted into U.S. dollars. Novartis posted some US$10.5 billion in group net sales from continuing operations for the quarter, which indicated an 8% year-on-year (y/y) rise in local currencies, but translated into a 2% y/y decline when calculated in U.S. dollars. Of the group's four business units, Pharmaceuticals performed the strongest, with an 11% y/y rise (or 3% y/y in U.S. dollars) to US$7.1 billion.
The Swiss group had some considerable costs to tackle during the quarter, including financing for a 1.5-billion-euro (US$2.1 billion) bond and ongoing costs related to its 2008 stake purchase of U.S. eyecare specialist Alcon (see Switzerland: 7 April 2008: Novartis to Pay Nestlé Up to US$39 bil. for Eyecare Specialist Alcon). At the same time, operating costs were kept mostly in check. Spending on marketing, sales, and general administrative costs was lower compared with the same period a year ago. Investment in research and development, meanwhile, grew by a modest 2% y/y to US$1.8 billion.
This left sufficient room for a marginal increase in operating profit. Calculated by IHS Global Insight as net sales minus cost of goods sold, marketing and sales, research and development (R&D), and general and administrative costs, Novartis's operating income inched up by 1.3% y/y to US$2.4 billion, triggering a 22.6% operating margin. Net income, however, was hit much worse by the extra one-off costs during the second quarter, and slipped by 10% y/y to just over US$2 billion.
Novartis: Q2 2009 Financial Results (US$ mil.) | |||
Q2 2009 | % Change Y/Y (in US$) | % Change Y/Y (in local currency) | |
Net Sales (from continuing operations) | 10,546 | -2 | 8 |
- Pharmaceutical Sales | 7,115 | 3 | 11 |
- Vaccines and Diagnostics | 247 | -23 | -15 |
- Sandoz | 1,774 | -9 | 4 |
- Consumer Health (from continuing operations) | 1,410 | -8 | 2 |
Other Revenues | 196 | -26 | - |
Cost of Goods Sold | -2,824 | -4 | - |
Marketing and Sales | -2,990 | -4 | - |
R&D | -1,802 | 2 | - |
General and Administrative | -542 | -3 | - |
Other Expenses | -220 | 37 | - |
Group Operating Income* | 2,388 | 1.3 | - |
R&D Expenses as % of Total Sales | 17.1% | 0.6 pp higher | - |
Operating Margin** | 22.6% | 0.6 pp higher | - |
Group Net Income | 2,044 | -10 | - |
pp – percentage points | |||
Turning to product sales, Novartis's cardiovascular, metabolic, and oncology treatments remained the biggest earners from April to June, with cancer drugs Gleevec/Glivec (imatinib mesylate) and Femara (letrozole) recording particularly strong sales growth in the United States. The U.S. market also saw a slight pick-up in sales for blood pressure drug Diovan (valsartan), at 7% y/y or US$665 million, contributing to Diovan's unchallenged status as Novartis's top-selling product, with global turnover of US$1.5 billion.
Newer products hovering just outside the company's top ten continued to make strong headway in the respective therapeutic markets. Osteoporosis drug Reclast (zoledronic acid), for instance, saw its global sales expand by 80% y/y to US$115 million. Recently launched drugs made combined sales of US$1.1 billion during the quarter, and accounted for some 16% of the Pharmaceutical division's sales, up by six percentage points compared with the same quarter of 2008.
Generic competition and adverse currency effects meant that losses were felt on certain drugs as well. Epilepsy drug Tegretol (carbamazepine) suffered a 31% y/y downturn in global sales, while blood-pressure drug Lotrel (amlodipine/benazepril) and asthma treatment Foradil (formoterol fumarate) slumped respectively by 14% y/y to US$86 million, and 15% y/y to US$88 million.
Novartis: Q2 2009 Sales of Top 20 Products (US$ mil.) | ||||
Global Sales | % Change Y/Y* | U.S. Sales | % Change Y/Y* | |
Diovan/Co-Diovan | 1,533 | 2 | 665 | 7 |
Glivec | 990 | 5 | 268 | 24 |
Zometa | 359 | 4 | 173 | 8 |
Femara | 310 | 7 | 141 | 18 |
Sandostatin | 281 | -3 | 112 | 7 |
Lucentis | 294 | 21 | N/A | N/A |
Neoral/Sandimmun | 227 | -12 | 20 | -29 |
Exelon/Exelon Patch | 233 | 15 | 88 | 35 |
Voltaren (excl. OTC) | 198 | -8 | 1 | 0 |
Exforge | 168 | 66 | 57 | 58 |
Exjade | 173 | 34 | 75 | 42 |
Lescol | 148 | -18 | 30 | -29 |
Comtan/Stalevo | 138 | 5 | 54 | 6 |
Ritalin/Focalin | 110 | -4 | 83 | -5 |
Reclast/Aclasta | 115 | 80 | 80 | 74 |
Tegretol | 91 | -31 | 20 | -62 |
Foradil | 88 | -15 | 2 | -50 |
Lotrel | 86 | -14 | 86 | -14 |
Myfortic | 90 | 17 | 34 | 42 |
Trileptal | 77 | -7 | 31 | 3 |
Top 20 Products Total | 5,709 | 4 | 2,010 | 10 |
Rest of Portfolio | 1,406 | -1 | 402 | 5 |
Total Division Sales | 7,115 | 3 | 2,412 | 9 |
* Growth measured on an as-reported basis. | ||||
Outlook and Implications
Looking ahead, Novartis has raised its full-year guidance for the Pharmaceutical division, which it now expects to see at least high single-digit growth in net sales when calculated in local currencies. At group level, Novartis has retained its mid-single-digit sales growth, also in local currencies. Profits, both at the operating and net level, risk being "more than offset" by losses brought on through currency effects. The group still intends to generate savings of US$1.3 billion through its Forward cost-containment programme by the end of 2009.
As the transition of Novartis's drugs portfolio nears completion, leaving a newer generation of treatments in its wake, the impact of generic competition on older products is expected to soften. R&D spending on new drugs is expected to yield up to 130 regulatory applications for new drug authorisations by 2011. In the second quarter, Novartis took important steps towards securing new and future drug approvals, including that of Afinitor (everolimus) in advanced renal cell carcinoma, new indications for Exforge, Glivec and Coartem, and strong late-stage clinical trial results for chronic obstructive pulmonary disease drug QAB149 (see Switzerland: 21 May 2009: Novartis's QAB149 Excels in Phase III COPD Trial).
Participation in a number of national response programmes on A/H1N1 influenza, or swine flu, is also expected to contribute to Novartis's top-line growth this year, while the acquisition of Austrian firm Ebewe's speciality generic injectables business will breathe new life into generics subsidiary Sandoz (see Switzerland: 20 May 2009: Novartis to Buy EBEWE's Speciality Generics Business for US$1.2 bil.). The Swiss firm will also have some important setbacks to contend with during the second half of this year though; the U.S. FDA's request for additional data on meningococcal disease vaccine Menveo will delay the drug's approval by at least eight months, while multiple sclerosis drug FTY720 faces extra scrutiny before the end of the year in light of its link to a case of haemorrhaging focal encephalitis in a late-stage clinical trial (see Switzerland: 2 July 2009: FDA Complete Response Letter Demands More Data on Novartis's Menveo and Switzerland: 15 April 2009: Novartis's MS Candidate Treatment FTY720 in the Spotlight over Safety Concerns).