Fourth quarter drop dents Novartis profit

Novartis is looking to bring new products to the production line Keystone

Swiss pharmaceutical giant Novartis has posted a record profit of $12 billion (SFr13.2 billion) for 2007, but results suffered in the fourth quarter.

Like most of the drug industry, the company suffered from declining sales in key units, a lack of new products and pressure in the generic sector.

Novartis’ record result was only achieved in part from the sales of the Gerber baby-food business and its medical nutrition division to another Swiss multinational, Nestlé.

These two sales brought in $5.2 billion after tax. The situation was unsatisfactory in the fourth quarter, with profit falling 45 per cent to $904 million, well short of most analysts’ expectations.

Sales for the year were $39.8 billion, up eight per cent, although in local currencies the increase was only three per cent.

“Novartis delivered a strong performance in all major regions and in all divisions, with the exception of pharmaceuticals in the US hit by generic competition and a product withdrawal,” said Novartis chairman Daniel Vasella in a statement.

Stormy year

The company took major hits from delays in approval of key diabetes drug Galvus, the withdrawal of bowel treatment Zelnorm in the United States and failure to gain approval for painkiller Prexige.

In response, it cut 2.5 per cent of its workforce, aiming for annual savings of $1.6 billion in 2010. Novartis took a charge of $450 million in the fourth quarter for the measures and warned that the first half of 2008 would suffer from a “strong negative impact” from it US drug unit.

The company also changed the head of its pharmaceutical unit, moving Thomas Ebeling to its smaller consumer-health unit and replacing him with American Joe Jimenez.

It will be looking to bring new products onto the market with a number of major patents due to run out soon, including that of its blockbuster hypertension treatment Diovan.

The Swiss drugmaker’s shares fell 12 per cent last year.

On Thursday Novartis announced a new SFr10 billion ($9.20 billion) buyback programme, to be put up for shareholder approval in February.

It broadly maintained its existing outlook, saying it expected group sales to rise at a mid-single-digit rate in 2008, with drugs sales increasing at a low-single-digit rate, and proposed a 2007 dividend of SFr1.60, up 19 per cent.

swissinfo with agencies

Key facts

Net sales: $39.8 billion (+8%)
Net income: $11.97 billion (+66%)
Earnings per share: $5.15 (+68%)
Employees: 98,200 in more than 140 countries

About Novartis

Basel-based Novartis was created in 1996 through the merger of Ciba-Geigy and Sandoz.

In 2006 it had a workforce of just over 100,000 in 140 countries around the world. The staff in the US accounted for about 25% of the total.

The company is organised into four divisions: pharmaceuticals (prescription medicines), vaccines and diagnostics, Sandoz, (generic prescription drugs) and consumer health.

The name Novartis is derived from the Latin novae artes, meaning “new skills”.

Salary cut

Novartis CEO and chairman Daniel Vasella, one of Switzerland’s top earning business figures, earned SFr4 million less last year.

He received SFr17.1 million from the company. His base salary remained at SFr3 million in 2007, with the rest awarded as shares and stock options as well as a contribution to his pension fund.

According to the Ethos foundation, Vasella’s income in 2006 was actually closer to SFr44.2 million, making him the country’s top earner. Banker Marcel Ospel, chairman of UBS, was second with SFr26.6 million, while Nestlé boss Peter Brabeck came third with SFr17.2 million.