Novartis Sees Tougher 2009, Even as Profit Jumps

Swiss drugmaker Novartis expects 2009 to be increasingly tough, even after sales of blood pressure and cancer drugs helped drive fourth-quarter net profit up 62 percent.

Profit hit $1.5 billion but missed forecasts as the strong dollar weighed, and Novartis said on Wednesday it expected 2009 to be an "increasingly challenging environment."

"Quite a negative surprise due to higher than expected negative currency effects," said DZ Bank analyst Thomas Maul. "Traders should take profits today and value investors stick to the stock."

Novartis shares fell 3.5 percent to 49.64 Swiss francs, versus a 1.1 percent drop in the European healthcare sector.

Pharmaceutical makers like Novartis have proven relatively resilient in the economic downturn as healthcare is usually one of the last areas where consumers cut back spending.

But the Basel-based company faces looming loss of patent protection for its top-selling Diovan blood pressure drug and tougher paths to markets for new products, and is trying to diversify and develop a clutch of new medicines to fill the revenue gap.

Novartis now expects group sales growing at a mid-single-digit rate in 2009 and drug sales at a mid- to high-single-digit rate.

But Chief Executive Daniel Vasella still expects some pain in 2009, particularly in animal health and non-prescription medicines, as consumers turn to stores' own brands.

"We will have certainly some businesses performing well and others having some impact from the economy," Vasella told reporters. "So we will use all means to improve productivity but the layoffs would be the last (thing) we would really implement."

New Medicines

Novartis shares lost 15 percent in 2008, much less than the wider Swiss blue-chip market and suffering financial stocks like UBS.

But like many pharmaceutical makers, Novartis still has problems to overcome.

It trades at nearly 11 times forecast 2009 earnings, a premium to European drugmakers like AstraZeneca and Sanofi-Aventis, due to promising new drugs like FTY720 for multiple sclerosis.

It is roughly in line with GlaxoSmithKline and a discount to Swiss rival Roche Holding.

Novartis had mixed news on its new medicines on Wednesday, saying it recently submitted lung disease drug QAB149 for European and U.S. approval and also brought forward regulatory filing of ACZ885, to treat rare auto-inflammatory diseases, to December 2008 from a previously expected 2009.

But it had a setback to its pipeline after U.S. regulators asked for a late-stage trial of promising meningitis vaccine Menveo to be expanded.

Filing of Menveo for use in infants is now expected in 2011, Novartis said.

Fourth-quarter sales rose 1 percent to $10.1 billion, but were up 8 percent in local currencies which strips out the impact of fluctuating exchange rates.

The dollar's rise in the fourth quarter hit Novartis because it reports in the U.S. currency but generates much of its sales elsewhere.

The group proposed a dividend of 2 Swiss francs ($1.76), more than analysts expected.

Novartis had been expected to post fourth-quarter net profit of $1.9 billion and sales of $10.5 billion, according to a Reuters poll.

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