The Wall Street Journal-20080118-Earnings Digest- Novartis-s Net Drops 45-- Hit by Generics
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Earnings Digest: Novartis's Net Drops 45%, Hit by Generics
Novartis AG reported a 45% drop in fourth-quarter net profit, hurt by a restructuring charge, generic competition and a product withdrawal.
The Swiss drug maker's earnings reflect most of the issues haunting the pharmaceutical sector, where a rising number of drugs are losing patent protection and a tough regulatory environment is hindering new drug approvals.
Galvus, a diabetes drug that Novartis had hoped would become a multibillion-dollar product, may never be launched in the U.S., the company said yesterday. Novartis hoped to start selling the drug in the U.S. last year, but the Food and Drug Administration requested more clinical testing, delaying Galvus's launch indefinitely.
Chief Executive Daniel Vasella said Novartis is still talking to the FDA but may choose not to pursue FDA approval if the agency's demands for new clinical testing are too onerous. Galvus has been approved in Europe and some emerging markets; without the important U.S. market, analysts expect the drug to eventually generate modest annual sales of about $250 million.
Novartis's net profit fell to $904 million in the quarter from $1.65 billion a year earlier, hurt by a charge of $444 million for a cost- savings program. Under the program, announced in December, the company is cutting 2,500 jobs world-wide. Dr. Vasella said Novartis will close research centers in Vienna and Japan.
Sales in the quarter grew 6% to $9.93 billion. U.S. sales fell 15% to $3.07 billion from $3.62 billion.
Novartis's earnings will continue to suffer in the first half of 2008 but should improve in the second half of the year, Dr. Vasella said. Novartis said it expects sales to rise at a midsingle-digit rate for the group, and at a low-single-digit rate at the pharmaceuticals unit.
Dr. Vasella's compensation fell by about 20% in 2007 to 17 million Swiss francs ($15.5 million) because Novartis didn't meet some of its financial and business targets, the Novartis chief said in an interview. He said it was the first time his pay has fallen since he started running the company more than a decade ago.
Novartis also announced a $9 billion share buyback, and said it is planning to raise its dividend 19% to 1.60 francs a share.
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Goran Mijuk contributed to this article.
