U.S. News

Novartis Cuts Sales Outlook; Second-Quarter Profit Rises 18%


Novartis cut its full-year results outlook as generic competition pressured sales of a key blood-pressure drug, and said U.S. regulators had delayed the approval process for an important cancer treatment.

Novartis said on Tuesday it now expected mid-single-digit percentage growth in group net sales and low-single-digit growth in drug sales, slightly lower than its previous forecast.

But strong second-quarter sales of key drugs and a pledge to step up share buybacks countered the bad news.

Novartis shares were 0.8% lower in morning trading in Switzerland, slightly underperforming the sector.

Novartis' Second-Qaurter Earnings

Europe's major pharmaceutical companies are under pressure to increase returns after a series of high-profile setbacks that have hit investors' and the general public's confidence.

Shares in Novartis, Europe's third-largest pharma firm by sales, have been pressured by a slew of disappointing news in recent months and were down nearly 6% so far this year before Tuesday's session, more than the European sector.

"Novartis Q2 results were overall slightly ahead of our forecasts and consensus, thanks to better than expected organic growth as well as lower than expected tax payments," WestLB
analyst Andreas Theisen said in a note.

Net profit at Novartis from continuing operations rose 18% to $1.94 billion in the second quarter, in line with analysts' forecasts, on the back of a 10% rise in sales.

Although earnings guidance has been lowered, this had been flagged by the company and was probably priced into shares, said Vontobel analyst Karl-Heinz Koch.

Novartis also said U.S. regulators had extended their review period for cancer drug Tasigna by three months to review additional data. No new studies are required.

"The delay in the Tasigna approval will not change our estimates significantly, but further increases the risk profile of Novartis," Kepler Equities analyst Denise Anderson said in a note.

The drugmaker sweetened the pill for shareholders by pledging to complete previously announced share buybacks and purchase the remaining open amount of up to $4 billion in shares by February 2008.

The company said it would use its free cash flow and proceeds from two divestments to Nestle to fund targeted acquisitions and share buybacks.

Slowing Growth

Flagship products Diovan for high blood pressure and Glivec for cancer helped boost sales in Novartis's pharmaceuticals division by 6% to $6.06 billion.

Novartis Generic Competition Hits Outlook

But Novartis said it expected its drug sales growth to slow in the second half, mainly due to U.S. generic competition for blood pressure drug Lotrel and antifungal Lamisil, as well as
the withdrawal of bowel drug Zelnorm after data indicted a possible link to heart attacks and strokes.

Drug sales should start to accelerate again from the second half 2008, with double-digit growth seen from then through 2011, the company said.

Novartis said it still expected a European Union decision on approval of diabetes drug Galvus in 2007. It is in talks with regulators on further steps needed for U.S. approval and expects an update from the Food and Drug Administration in August.

It plans to submit Galvus for approval in Japan in April 2008.

Novartis trades at 15-times forecast 2008 earnings, according to Reuters data, in line with the DJ Stoxx European pharmaceuticals index but ahead of rival drug majors GlaxoSmithKline and Sanofi-Aventis due to the relative strength of its pipeline of future drugs.

Novartis has previously forecast group sales growth of above 5% for 2007 and for the pharmaceuticals division at a low- to mid-single digit percentage.