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Novartis Braces for Lower Profitability in 2012
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Novartis AG is bracing for lower profitability this year as key products like top-selling blood pressure drug Diovan face competition from cheaper rivals, the Swiss drugmaker said as it posted an 8 percent rise in quarterly earnings.
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Core earnings per share rose to $1.23 in the fourth quarter, below the average estimate of $1.28 in a Reuters poll of analysts.
Novartis [NOVN.VX
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] expects its 2012 core operating income margin in constant currencies to be slightly below the 27.2 percent reached last year, while sales in constant currency are expected to be in line with the $58.566 billion posted in 2011.
"While productivity measures and margin improvements on products launched since 2007 are important contributions to improving profitability, they are not expected to fully offset the loss of margin from generic competition, price erosion," Novartis said.
The group added these measures would also not be enough to shield its margins from investments required for new products and the impact of a possible delayed start-up of its Lincoln manufacturing site in the United States.
Like many other global drugmakers, Novartis is cutting costs as the industry faces its biggest wave of patent expiries.
Novartis announced its latest round of job cuts earlier this month, saying it would slash nearly 2,000 of its U.S. workforce to shield its top and bottom lines ahead of the patent loss of Diovan, which raked in sales of $5.7 billion in 2011.
The Basel-based group is now banking on recently acquired eyecare group Alcon, its presence in emerging markets, strong generics unit and its newest products to shore up profitability in the face of competition from cheaper copies of its drugs.
Fourth-quarter sales rose to $14.781 billion, helped by demand for some of its newest products, such as eye drug Lucentis and cancer medicine, Tasigna, going some way to offset the recent blow to two of its most promising products, Gilenya and Tekturna.
European authorities are advising doctors to continuously monitor patients for six hours after giving them the first dose of multiple sclerosis medicine Gilenya, while Novartis had to take a one-off charge of $900 million after Tekturna failed to live up to expectations.
U.S. rival Johnson & Johnson [JNJ
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] which posted forecast-beating quarterly earnings on Tuesday, warned its 2012 earnings would be worse than expected as it struggles with weak U.S. sales and a stronger dollar.
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