[Ip-health] Financial Times: Novartis profits hit by restructuring charge

[Thiru Balasubramaniam]

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Novartis said its Sandoz generics subsidiary and its new vaccines and
diagnostics operation had both performed strongly last year and looked
set for further expansion in 2008. Pharmaceuticals mainstays Diovan
(for high blood pressure) and Glivec (for leukaemia) also continued to
expand sales sharply, for the first time breaching for the $5bn and
$3bn marks, respectively.

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Novartis profits hit by restructuring charge

By Haig Simonian in Zurich

Published: January 17 2008 08:00 | Last updated: January 17 2008 08:11

Novartis on Thursday revealed a sharp fall in fourth-quarter profits
as restructuring charges and the impact of generic competition took
their toll, but the Swiss drugs group predicted it would overcome a
sharp slowdown in its crucial US business and restore growth in the
second half of this year.

The company, once one of the world=92s fastest growing drugmakers,
forecast another record year of net sales and earnings on continuing
businesses, in spite of only low single-digit sales growth in its core
pharmaceuticals division in 2008, after a series of product setbacks
last year.

Full-year 2007 results, released on Thursday. revealed the full impact
of generic competition and product withdrawals in the US.

Operating profits in pharmaceuticals tumbled 24 per cent in the fourth
quarter to $1.23bn on a 2 per cent rise in sales to $6.15bn. The
impact worsened with the inclusion of a $307m fourth quarter
restructuring charge for future efficiency gains, revealed last month,
which took operating profits down 43 per cent to $925m

Including all charges and provisions, operating profits for the full
year in pharmaceuticals fell by 9 per cent to $6.09bn, on a 6 per cent
rise in sales to $24.03bn. Net group profits from continuing
operations in the fourth quarter, hit by the pharmaceuticals weakness,
fell by 42 per cent to $931m, well below analysts=92 expectations.

Novartis warned its US setbacks would continue to affect performance
in the first half of this year, but predicted the second half would
trigger a renewed growth phase on the back of important product
developments.

=93The 15 approvals for new prescription medicines obtained in the US
and in the EU lay the foundation for a new growth cycle in
pharmaceuticals, which is expected to emerge in the second half of
2008=94, noted Daniel Vasella, chairman and chief executive.

The group underlined its confidence with a proposed 19 per cent
dividend increase to SFr1.60 a share and a new SFr10bn repurchase
programme, following the SFr4.7bn ($4.2bn) of shares bought back last
year. The programme was boosted by the sharp rise in net liquidity to
$7.46bn at the end of last year, from $700m, thanks to disposal
proceeds.

Novartis shares, which were one of the worst performers among the
large cap drug stocks last year, opened 90 centimes or 1.5 per cent
lower at SFr60.35 in Zurich.

Sales and earnings in 2007 marked another record, with revenues up 8
per cent to $39.8bn and net profits jumping 66 per cent to $11.99bn on
the back of disposal gains. Stripped of $5.2bn in net divestment
gains, profits after tax on continuing operations fell by 4 per cent
to $6.54bn.

That figure includes total charges of $1bn, representing $590m
provisions for corporate environmental costs, and the $444m fourth
quarter efficiency charge. Novartis predicted the productivity
improvements being implemented would produce pre-tax cost savings of
$1.6bn in 2010

Novartis said its Sandoz generics subsidiary and its new vaccines and
diagnostics operation had both performed strongly last year and looked
set for further expansion in 2008. Pharmaceuticals mainstays Diovan
(for high blood pressure) and Glivec (for leukaemia) also continued to
expand sales sharply, for the first time breaching for the $5bn and
$3bn marks, respectively.

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Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
thiru@keionline.org


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