Novartis to overhaul Alcon but no 'quick fix': CEO

Novartis reports quarterly profits
Novartis reports quarterly profits   

Swiss pharmaceutical giant Novartis' fourth quarter earnings missed expectations as the group prepares to overhaul its Alcon division, a task that chief executive Joe Jimenez told CNBC he did not expect to be a "quick fix."

In a statement, Novartis said it had delivered "strong sales growth" in 2015 and said a strong pharmaceuticals performance had offset "weak Alcon" - a division that specializes in eye care.

In the fourth quarter, core net income fell 5 percent from the same quarter last year to $2.707, compared to an average forecast of $2.967 from analysts polled by Reuters. Net sales for the same period also fell to $12.52 billion, more than analysts had forecast ($13.044).

Currency effects had also negatively impacted sales by 10 percent and core operating income by 15 percent, it said. Shares of Novartis were trading 2.5 percent lower following the earnings release.

The company announced that Mike Ball would replace the head of its Alcon division Jeff George from February 1, and said it was focusing Alcon on its core Surgical and Vision Care business, adding it had plans to accelerate growth.

Chief Executive Joe Jimenez told CNBC that it would take a bit of time to turn Alcon around.

"The specific growth plan on Alcon is that we're going to focus the business on that core surgical and cataract surgery business," he said.

Joseph Jimenez, CEO of Novartis.
Mark Neuling | CNBC
Joseph Jimenez, CEO of Novartis.

"By focusing, we're going to strengthen the base and what that means is really increasing our investment against the customer, the physician," he said.

"Then we're going to invest for growth...We don't expect it to be a quick fix and it's probably going to take us until mid-year before we start to see a turn on that business but we expect to exit the fourth quarter with low to mid-single digit sales growth."

The group also announced plans to streamline its operations to lower costs and improve efficiency. It said planned changes were expected to generate over $1 billion in annual cost savings by 2020 with one-time restructuring costs of $1.4 billion to be spread over five years.

"This is a natural extension of our strategy which we announced last year," he said.

It proposed a dividend of 2.70 Swiss francs ($2.65) per share for 2015, up 4 percent year-on-year. Its outlook for 2016 was for net sales and core operating income to be "broadly in line" with 2015.

In September, Jimenez told CNBC that the drugmaker had been hit by a slowdown in emerging markets. In China specifically, he said that double-digit growth had slowed to single-digit growth.

On Wednesday, Jimenez insisted that China continued to be a growth market and was still a place for investment in health care. "You're going to continue to see a rural population that gets more and more coverage in terms of health care and so we see China continuing to be a growth market, but not double-digit."

The wider pharmaceutical industry is also operating in volatile times with concerns over a slowdown in China and other emerging markets prompting many companies to change their outlooks. In 2016, Jimenez believed more mergers and acquisitions were on the cards.

"I think you're going to see an increase in M&A activity in health care in 2016," he said. "First of all, money is still cheap and valuations have come down,. so what we've said, in terms of how we are going to participate, is primarily with built-on acquisitions on each of our three big businesses."

"I could be wrong but if you look at all the stars aligning, it looks like there could be an increase in activity."

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