Novartis has turned in its results for the first nine months of the year, with income gnawed at by generic competition and product suspensions, but still claiming record earnings helped along by divestment gains.
The pharmaceutical division reported operating income of $5.2bn (€3.7bn) for the first nine months of the year, only marginally up on last year's figure of just under $5.1bn. The company as a whole reported pre-tax profits of $6.3bn, and operating income of around $5.9bn. The biggest problems for the firm have come in the form of generic competition for Lotrel (amlodipine and benazepril), Lamisil (terbinafine) and Famvir (famciclovir).
Lotrel sales were down 34 per cent to $660m over the nine months, affected by a generic version of the drug launched by Teva Pharmaceuticals in May this year. Despite Novartis citing valid US patents covering the drug through to 2017, a lawsuit is ongoing and a trial date has yet to be set. Lamisil was also hit with a 31 per cent decline in sales, thanks to a generic launch in the US in July, with sales in Europe and Japan also affected.
Famvir still managed to bring in $201m, but Novartis is in the process of defending patents covering the antiviral til 2015, as Teva threatens to bring a generic version to market. A US Court of Appeal has so far temporarily prohibited Teva from selling the generic version, with the injunction remaining until a final decision by the court. Novartis has reported an intangible asset impairment charge related to the Famvir generic competition of $320m, up on the original $250-300m estimates last month.
The company also took a hit from the suspension of Zelnorm (tegaserod maleate) in March, following the statistically significant incidence of cardiovascular ischemic events in patients taking the drug compared to placebo. The event prompted Novartis to revise its financial outlook, dropping 2007 expectations for both the pharmaceuticals division and the group as a whole.
The divestiture of Medical Nutrition and Gerber businesses to Nestlé (for $2.5bn and $5.5bn respectively) earlier this year, however, helped offset the losses caused by the above product problems, and has positioned Novartis as a solely healthcare-focused business. The company's vaccines and diagnostics arm did well, helped along by increased flu supplies shipped over to the US, also sent over earlier this year than in 2006.
Sandoz, Novartis' generics division also performed strongly thanks to new product launches and efficiency improvements, reporting operating income of $179m for the nine months to September 30. Job cuts
In an effort to 'strengthen and streamline' the company's pharmaceutical operations in the US, Novartis is slashing 1,260 positions in the pharma sales and marketing team. 240 jobs will go at the US headquarters, with a further 510-headcount reduction in both Novartis and third party sales teams. The workforce reduction is hoped to save the company around $230m in 2008.
The organisation as a whole is also due to be 'delayered and simplified,' with decision-making decentralised, as part of a series of moves that the company claims should lead to significant savings over the next two years, as well as improve competitiveness. Despite the knocks the company has taken thanks to the arrival of the generic competition that is threatening the industry in general, Novartis has still notched up an impressive 14 positive regulatory opinions this year and has a number of late stage candidates on schedule for submission.
The company has reaffirmed it 2007 expectations of low-single-digit net sales growth in its pharmaceuticals division, and mid-single-digit growth in the group as a whole.