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U.S. factory stoppage hits Novartis first quarter earnings
April 24, 2012 / 5:15 AM / 5 years ago

U.S. factory stoppage hits Novartis first quarter earnings

A man walks past the logo of Swiss drugmaker Novartis AG in front of a plant in Basel October 25, 2011. REUTERS/Arnd Wiegmann

ZURICH (Reuters) - Swiss drugmaker Novartis AG on Tuesday stuck to its outlook for lower profitability this year, as a stoppage at a U.S. manufacturing site and tough annual comparisons for its Sandoz division hit first-quarter core earnings.

Chief Executive Joseph Jimenez said he expected production at a consumer health manufacturing site in Lincoln, Nebraska - which has annualized sales of $1 billion - to restart in May, with shipments resuming mid-year.

The stoppage to sort out quality issues sent net sales in the consumer health division down 20 percent in the first quarter. First-quarter sales fell 2 percent to $13.74 billion, just below analysts’ average forecast of $13.85 billion.

“A good performance in Pharma made up for the Vaccines and Consumer shortfalls, with the clear message being that the Lincoln ... plant restart is going to be a slow process extending well into 2013,” Jefferies analysts said in a note.

Shares in Novartis were down 0.6 percent by 0725 GMT, versus a flat European pharmaceuticals sector.


Novartis is racing to develop new drugs as patent expiries on some of its best-selling drugs to start to bite.

It got some relief last week when European and U.S. health regulators decided to back the use of its big drug hope, multiple sclerosis pill Gilenya, albeit with stronger warnings on heart risks.

Gilenya posted sales of $247 million in the first quarter, despite being blighted by safety warnings. Jimenez said he expects Gilenya to achieve blockbuster status - with sales of more than $1 billion - this year.

Another promising development was that Novartis’s lung drug QVA149, which it is developing in partnership with Vectura, met its primary end point in the first four late-stage studies in patients with chronic obstructive pulmonary disease (COPD).

Novartis expects to file the drug for regulatory approval in the United States at the end of 2014.


Novartis is also pinning its hopes on its eyecare group Alcon, plus its presence in emerging markets, its strong Sandoz generics unit and its newest products to shield margins in the face of growing price pressure from cheaper copies of its drugs.

Its high blood pressure drug Diovan, which sells $6 billion a year, went off-patent in Europe last year and it will lose exclusivity in the United States this September. Japan follows in 2013.

Sales of its newest products, including eye drug Lucentis, grew 16 percent in the first quarter and now make up 28 percent of the group total.

“It’s clear our new product launches are more than offsetting our patent expiries,” Jimenez told a media call.

The Basel-based group reiterated its guidance for a core operating income margin slightly below the 27.2 percent reached in 2011, on a constant currency basis, as its top line comes under pressure from generic copies of its medicines.

In addition, Novartis expects the strengthening dollar to have a negative impact of approximately 2-3 percent on sales and operating income, if exchange rates seen in March prevail for the rest of the year.

Core earnings per share fell 10 percent to $1.27 in the first quarter, compared to the average estimate of $1.32 in a Reuters poll of analysts in which estimates ranged between $1.22 and $1.49.

Jimenez said Novartis did not need acquisitions to grow, but bolt-on acquisitions in the range of $1 to $3 billion could play a role.

Reporting by Caroline Copley; Editing by Mark Potter and Jane Merriman

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