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 Novartis,
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.
The company has more than 10% of its costs in Switzerland,
though the country only accounts for about 2% of its sales. That
means that while Novartis does anticipate growth, the strengthened
franc and the strong dollar mean that the company may see about 12
percentage points wiped from its core operating income this year
and a bite of about seven percentage points off its sales.
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. At one point the euro lost as much as
about 30% against the franc shortly after the SNB's move, and the
Swiss currency remains at an elevated level relative to both the
common currency and the dollar.
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 due to a $1.1 billion 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%.
Novartis flagged rising sales of its newest products--medicines
launched in 2009 or later or protected by patents until at least
2018 in key markets--which contributed 32% of total sales in the
quarter. These treatments include cancer drug Afinitor and multiple
sclerosis pill Gilenya.
Novartis also said it would increase its dividend to 2.60 francs
per share for 2014, compared to 2.45 francs per share in 2013.
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 marta.falconi@wsj.com
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