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UPDATE 2-Novartis sales miss forecast as readies overhaul
April 24, 2014 / 5:56 AM / in 4 years

UPDATE 2-Novartis sales miss forecast as readies overhaul

* Q1 sales $14 bln vs $14.25 bln forecast

* Q1 net profit $2.97 bln vs $2.7 bln in Reuters poll

* To consolidate back room functions to boost profitability

* Confirms full-year outlook (Adds analyst, shares, details on Afinitor)

By Caroline Copley

ZURICH, April 24 (Reuters) - Swiss drugmaker Novartis posted a weaker-than-expected 1 percent rise in quarterly sales, underscoring the pressures from generic competition and tighter healthcare budgets that led it to announce a radical business overhaul earlier this week.

On Tuesday, Novartis unveiled a series of deals worth over $25 billion aimed at strengthening its cancer business and exiting underperforming operations - part of a wider trend among drugmakers to focus on their best assets.

The group said on Thursday it made first-quarter sales of $14.02 billion, below analysts’ average forecast of $14.25 billion and including a worse-than-expected 1 percent drop in sales at its pharmaceutical division.

It blamed cheap generic competition for its bone repair drug Zometa, as well as a slowdown of sales of leukemia drug Glivec and cancer drug Afinitor in the United States.

“The slight disappointment was a 2 percent sales miss in pharma,” said Berenberg analyst Alistair Campbell.

Shares in Novartis, up more than 7 percent so far this year, were down 0.9 percent to 75.55 Swiss francs at 0840 GMT, lagging a slightly firmer European healthcare sector.

Novartis also reported a 24 percent jump in first-quarter net profit to $2.97 billion, beating analysts’ mean estimate of $2.7 billion. The figure was boosted by higher operating income which included a $900 million pretax gain from the divestment of its diagnostics unit to Spain’s Grifols last November.

Core earnings per share rose 1 percent to $1.31, in line with expectations and blunted by the stronger Swiss franc and weaker emerging market currencies.


Novartis’ business overhaul, which includes buying GlaxoSmithKline’s cancer drugs as well as selling the British company its vaccines business and also divesting its animal health arm to Eli Lilly, marks the conclusion of a year-long portfolio review.

In a further move to boost profitability, the group said on Thursday it would consolidate some back office functions - which are currently spread across its divisions - into one shared service organisation.

These include IT, financial reporting and procurement services. A spokesman for Novartis said the number of employees in back office functions would remain stable at around 7,000.

The group said the performance of cancer drug Afinitor was hit by shorter treatment times in the United States. It now forecasts peak sales for the drug of $1.5-$1.7 billion, which Deutsche Bank analyst Tim Race said was below its previous expectation for $2 billion.

Novartis is banking on new products such as Afinitor and multiple sclerosis pill Gilenya to help it grow sales through the upcoming patent expiry of leukemia drug Glivec.

It is already facing cheaper, copycat competition for its once best-selling blood pressure pill Diovan. However, it has been granted some reprieve by the lack of a generic competitor for the monotherapy form of the drug since Ranbaxy Laboratories has faced delays with U.S. regulators.

The Swiss firm now assumes a U.S. launch of the drug at the start of the third quarter.

Novartis confirmed its guidance for sales to grow in the low-to-mid single digits this year in constant currencies, while core operating income is expected to grow ahead of sales. (Editing by Mark Potter)

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