Novartis Upbeat Despite Weaker Profit -- Update

By Marta Falconi 

ZURICH--Swiss pharmaceutical giant Novartis AG on Tuesday reported a fall in fourth-quarter profit but said it expects its business to gain momentum this year despite uncertainty spawned by the strengthened Swiss franc.

Basel-based Novartis said net sales would grow by a mid-single digit percentage this year compared with 2014, when stripping out the effect of foreign-exchange rate fluctuations. Core operating income, which excludes certain charges and expenses, will likely grow at a slightly faster rate, the company said.

Last year marked the start of a sweeping overhaul of the company, aimed at refocusing it on three core businesses--pharmaceuticals, eye care and generics--where it says it has the size and reach to compete as the global pharmaceutical industry consolidates.

Novartis Chief Executive Joe Jimenez said during a media briefing Tuesday that he doesn't expect the recent surge in value of the Swiss franc to have a material impact on sales, but added the company is "taking a look" at its cost base, both in Switzerland and globally.

Earlier this month, the Swiss National Bank decided to abandon the 1.20 Swiss francs-a-euro cap, sending the value of the franc soaring and potentially inflicting higher costs on Switzerland's banks and many export-reliant companies. The franc gained as much as 29% in value versus the euro and 28% against the dollar shortly after the SNB's move, and remains at elevated levels relative to both currencies.

The currency fluctuation comes at a sensitive time for Novartis, which is in the midst of a revamp.

For the fourth quarter, Novartis reported a 26.5% drop in fourth-quarter net profit attributable to shareholders to $1.49 billion, from $2.03 billion in the same quarter a year earlier. The decrease is mainly because of a charge related to the sale of Novartis's flu vaccines business, the company said.

Core net income in the quarter, which excludes some items, rose to $2.91 billion from a restated $2.89 billion, Novartis said.

The company reported that sales declined 2% to $14.63 billion in the quarter, missing analysts forecast of $14.68 billion. Sales were hurt by generic competition for Diovan, a blockbuster blood-pressure medicine, the company said. Stripping out the impact of currency fluctuations, sales rose 4%.

As part of its continuing overhaul, Novartis said in January it had completed a roughly $5.4 billion sale of its animal-health division to Indianapolis-based Eli Lilly & Co. Novartis is also acquiring London-based GlaxoSmithKline PLC's oncology unit for around $14.5 billion, adding to its lineup of cancer drugs.

At the same time, Glaxo is paying $5.25 billion for Novartis's vaccines business. The two companies will also combine their over-the-counter drug businesses under Glaxo's management.

Write to Marta Falconi at [e-mail]

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