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 Despite the sales miss, the Basel-based company confirmed its
full-year guidance for a rise in sales and profit, expecting revenue
from new products to offset generic competition to its blood
pressure pill Diovan.
Novartis unveiled a series of deals worth more than $25 billion in
April to get out of underperforming businesses such as vaccines and
animal health operations while adding higher-margin cancer drugs
from GlaxoSmithKline <GSK.L>.
Weak performance from the outgoing vaccines and animal health
businesses weighed on second-quarter group sales that were up 2
percent at $14.64 billion, slightly short of the average forecast of
$14.72 billion in a Reuters poll.
Sales at the vaccines unit were down 13 percent, hit by the timing
of some bulk pediatric shipments, while animal health faced a tough
year-on-year comparison after last year's relaunch of flea control
product Sentinel.
Analysts at Sanford C. Bernstein described the results as "weak" but
noted that the company's full-year guidance remained intact and has
retained its "outperform" rating on the stock.
Shares in Novartis, which have advanced 14 percent this year as
investors cheered its overhaul, were trading down 0.9 percent at
80.40 francs by 0803 GMT (4.03 a.m. EDT).
NO 'BIG BANG' SAVINGS
Under the new structure, Novartis will concentrate on three
"powerhouse divisions" - pharmaceuticals, its Alcon eyecare unit and
generics division Sandoz - hoping a focus on a smaller number of
leading businesses will help to drive growth as healthcare budgets
come under pressure.
It is also consolidating some back-office functions into a single
shared-service organization. These operations are currently spread
across all divisions and account for more than $6 billion in
expenses.
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Chief Executive Joe Jimenez said the restructuring gives Novartis "a
lot of runway" to reduce costs further, albeit gradually.
"You shouldn't look for a 'Big Bang' of Novartis Business Services;
for example, us coming out and saying we're resetting our cost
base," Jimenez said. "This is going to be a process over time that
allows us to continually lower our costs and continually drive
margin growth."
Novartis confirmed its full-year guidance for sales to grow in the
low-to-mid-single digit percentage range this year as it braces for
generic competition to lop $2.7 billion off its top line.
Quality control issues at manufacturing sites for India's Ranbaxy
Laboratories <RANB.NS> - which holds the rights to launch the first
copycat version of Diovan - spared Novartis from a cheaper rival to
its once best-selling blood pressure pill for 20 months.
But Ranbaxy was granted approval to launch a copycat version at the
end of June, meaning Novartis will now face the full force of
competition.
Novartis refined its guidance for core operating income, saying it
expected growth at a mid-to-high single-digit rate compared with a
previous outlook for it to grow ahead of sales.
Core second-quarter operating income of $3.8 billion fell slightly
shy of the $3.83 billion analyst consensus.
(Editing by David Goodman)
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