By Andrew Morse
ZURICH--Novartis AG on Thursday reported a 4% fall in
first-quarter core net income but reiterated its guidance for the
full year as the Swiss drug giant begins to feel the benefits of a
big overhaul of its portfolio of businesses that focuses it on
three key areas.
Basel-based Novartis said core net income from continuing
operations fell to $3.2 billion, from $3.33 billion a year earlier.
Core net income, a measure that excludes items management deems to
be exceptional, would have risen 8% if measured in constant
currency, which strips out the impact of foreign exchange
swings.
The pharmaceutical giant reported a 7% drop in sales to $11.94
billion in the quarter ended March 31 from $12.77 billion a year
earlier based on operations the company still owns. Analysts
surveyed by Dow Jones had forecast sales of $12.61 billion.
Novartis said it expected net sales to grow in the mid-single
digits for the full year, with core operating income rising at a
faster high-single-digit pace.
The figures come shortly after Novartis completed a series of
transactions valued at roughly $25 billion that refocused the drug
group on three core areas: pharmaceuticals, generics and eye care.
The sweeping overhaul, which included the purchase of
GlaxoSmithKline PLC's oncology unit, has transformed Novartis into
a cancer powerhouse with roughly a fifth of its revenue expected to
come from cancer drugs.
Novartis also formed a joint venture with GSK to create an
over-the-counter business and sold the U.K. company most of its
vaccines business. Novartis also sold Eli Lilly and Co. an animal
health business.
When the proceeds from those transactions are included Novartis
reported a huge rise in net profit attributable to shareholders of
$13 billion in the quarter ended March 31. Novartis reported $2.94
billion in net profit a year earlier.
In a conference call to discuss the earnings, Chief Executive
Joe Jimenez said the transformation was helping the company boost
its profit margins--Novartis reported a 1.7 percentage point margin
expansion in the quarter--as it squeezed out costs, particularly in
procuring materials. The company said it saved $650 million in the
first quarter, $350 million of which came from buying in bulk.
Like other multinationals, Novartis is feeling the impact of
volatile currency markets, particularly a strong dollar that has
risen against other currencies. The company, which reports in the
U.S. dollars, said its revenue could be reduced by 10 percentage
points if early April exchange rates continue for the rest of the
year.
Mr. Jimenez said the company expected a decision from the U.S.
Food and Drug Administration in the third quarter on its LCZ696
heart medication. Many analysts see LCZ696 as a potential
blockbuster that could have sales of as much as $5 billion by
2020.
Write to Andrew Morse at andrew.morse@wsj.com
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