Novartis sees squeeze on margins (January 26, 2012)
Novartis expects to see a squeeze on margins this year as prices fall for drugs that have recently lost patent protection and more money is invested in new product development. This follows a particularly difficult fourth quarter during which operating income was hit by product cancellations and the suspension of production at a manufacturing site in the US.
“We experienced some disappointments in the fourth quarter with Tekturna/Rasilez and with the need to improve our quality standards at some manufacturing sites,” Joseph Jimenez, the Novartis chief executive, said in a prepared statement that accompanied the release of the company’s 2011 results. But he went on to say that Novartis is well-positioned to cope with the loss of patents for old drugs and to discover new ones to replace them.
At the end of the fourth quarter, Novartis was hit by the failure of a Phase 3 trial for aliskirin (Rasilez/Tekturna). Aliskiren is an approved drug for hypertension. The Phase 3 trial was testing it in a new indication for patients with diabetes and renal impariment. Unexpectedly, the trial was stopped because of adverse events. Shortly thereafter, the European Medicines Agency (EMA) announced a safety review of all aliskiren-containing medicines.
Novartis took an exceptional charge of $903 million against fourth-quarter earnings for the expected loss of sales of aliskiren. During the same quarter, it also booked a charge of $163 million for the discontinuation of two other trials, one for an experimental antiplatelet treatment, and the other for an osteoporosis drug.
Although net sales rose by 4% to $14.8 billion in the fourth quarter, the operating profit declined by 47% to $1.3 billion, largely because of the exceptional charges. For 2011 as a whole, net sales were up by 16% at $58.6 billion and operating profit was down by 5% at $10.9 billion. The company’s operating margin for 2011, excluding exceptional items and when expressed in constant currencies, improved by 1.1 percentage points. However taking currency fluctuations into account, the operating margin contracted by 0.5 points to 27.2% of net sales.
During 2011, Novartis saw net pharmaceutical sales grow by 7%; sales of its eye-care subsidiary, Alcon, rise by 10% and sales of generic products by 10%. However sales of vaccines and diagnostic products declined by 32%, mainly due to an unfavourable comparison with 2010 when there were significant pandemic flu vaccine sales. Net sales of the group’s two consumer health businesses increased by 6%.
Products launched onto the pharmaceutical market since 2007 continue to stimulate overall sales. In the fourth quarter, new products contributed $3.7 billion or 25% of net sales; for the full year this figure was $14.4 billion or 25% of net sales.
Gilenya (fingolimod), the first approved oral treatment for multiple sclerosis, was launched in the US in October 2010 and in parts of the EU in March 2011. It produced sales of $203 million in the fourth quarter and $494 million for the full year. However on 20 January 2012, the EMA said it was starting a safety review of the drug following reports of heart problems associated with its use. This included the death of one patient less than 24 hours after taking the drug. The cause of the death is still unexplained. Novartis said it is cooperating with the regulatory authorities to ascertain the overall balance of risks versus benefits of the treatment.
Otherwise, the company received 10 regulatory approvals or positive opinions for drugs and devices in the fourth quarter from the US, Europe, China and Japan.
Looking ahead, Novartis said that net sales in 2012 are likely to be “in line with 2011” measured in constant currency terms. The core operating margin, measured in constant currencies, is expected to be slightly below that for 2011.
Novartis has declared a dividend of CHF 2.25 ($2.44) per share for 2011, up by 2% from a year earlier.
Novartis announced its fourth-quarter and full-year 2011 results on 25 January 2012.
Copyright 2011 Evernow Publishing Ltd
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