Novartis Reports 2% Decrease in Net Sales During Q1

Swiss company Novartis has finished the first quarter with a decline in its net sales to USD13.7 billion, a year-on-year (y/y) decline of 2% (1% in constant currencies). Pharmaceutical sales and sales of Alcon products increased by 2% and 5%, respectively. In particular, pharmaceuticals reported strong growth in Asia, Africa, and Australasia; the United States; and Canada and Latin America, with y/y increases of 11%, 8%, and 7% respectively. There was a decline in pharmaceutical sales in Europe, however, with a y/y drop of 10%. Alcon reported strong growth in US and Asia /Africa/ Australasia, at 9% and 10%, respectively. In Europe, as well as Canada and Latin America, on the other hand, there was a decline of 2% for both. The group's generic division recorded a decline of 10% y/y, while consumer health sales fell by 20%. The fall was caused by the suspension of production in one of the US manufacturing sites. The vaccines and diagnostics division also showed a sharp decline, of 20%.

The company managed to maintain growth in expenses to the low single-digit rate, with research and development (R&D) spending increasing by 2.1% to USD2,235 million, and the costs of goods sold increasing by 0.6% to USD4,484 million. The operating margin, as calculated by IHS Global Insight, was down 2.1 percentage points at 20.4%. Net income was down by 17.5% to USD2,327 million.

Looking at product sales, in line with previous quarters, cardiovascular/metabolism and oncology products were the leading products in terms of sales. Hypertension drug Diovan (valsartan), treatment for chronic myeloid leukaemia (CML) Glivec/Gleevec (imatinib), and age-related macular degeneration drug Lucentis (ranibizumab) were the top three products; however, whereas global sales increased for Gleevec and Lucentis (6% and 30% respectively), global sales for Diovan fell by 15%. Afinitor (everolimus; for advanced renal cell carcinoma), Galvus, (vildagliptin; a diabetes treatment), and Tasigna (nilotinib; treatment for CML) had the highest y/y growth of, 60%, 57%, and 39%, respectively. Diovan, Zometa (zoledronic acid; for cancer complications), Neoral/Sandimmun (cyclosporine; a transplantation drug), and Myfortic (mycophenolic acid; a transplantation drug) were the only products that showed a decline in sales (of 15%, 12%, 7%, and 1%, respectively).

Outlook and Implications

Novartis started the year with a decline in first-quarter sales. The main driver for those was the fall in profits from Sandoz and the suspension of production at the Nebraska (US) manufacturing site. In spite of the fall in net sales during quarter one, however the company still expects net sales to be in line with 2011 in constant currencies, whereas the group core operating income margin in constant currencies is expected to be slightly below that of 2011. The company further expects that if the March exchange rates were to continue then it would have a negative impact on the company's sales and operating income of around 2–3%.

Novartis is expected to develop its pipeline of drugs further in 2012. The company has reported that four of the QVA149 Phase III studies, for the treatment of chronic obstructive pulmonary disease (COPD), have met their primary endpoints. Furthermore, the company's myelofibrosis treatment Jakavi (ruxolitinib) on 20 April received a positive opinion from the European Medicines Agency's (EMA's) Committee for Medicinal Products for Human Use for marketing in Europe.

The company has faced some setbacks for its multiple sclerosis treatment Gilenya after reports of heart problems and one death in the US, which could potentially have been linked to treatment with Gilenya, for which the EMA had given out new advice (see Europe: 23 April 2012: EMA Recommends New Advice for MS Treatment Gilenya). These are likely to negatively affect sales of Gilenya, which is currently a top 10 product in the first-quarter report.