Novartis reported net sales in the fourth quarter 2017 were $12.9 billion, a 5 precent (+2 percent at constant crrencies-cc) increase over the same period a year earlier, as volume growth of 7 percentage points (cc), including growth from Cosentyx and Entresto, was partly offset by the negative impacts of generic competition and pricing.
Operating income was $2.1 billion, up 42 percent (+41 percent cc), mainly driven by growth drivers, productivity, lower impairments, and a gain from achievement of a sales milestone related to the 2015 Vaccines divestment to GSK, which were partly offset by generic erosion. Core adjustments amounted to $1.2 billion.
Net income was $2.0 billion, plus 111 percent (+58 percent cc) over the year earlier period, driven by the strong operating income growth and higher income from associated companies. The prior year included exceptional charges related to a revaluation loss in Venezuela of $0.3 billion.
Earnings per share (EPS) was $0.85 (+113 percent, +59 percent cc), driven by growth in net income and the benefit from the share buyback program.
Core operating income was $3.2 billion (+7 percent, +5 percent cc) as growth drivers and productivity more than offset generic erosion. Core operating income margin in constant currencies increased 0.7 percentage points; currency had a negative impact of 0.2 percentage points, resulting in a net increase of 0.5 percentage points to 25.0 percent of net sales.
Core net income was $2.8 billion (+6 percent, +4 percent cc) driven by growth in core operating income.
Core EPS was $1.21 (+8 percent, +6 percent cc), driven by growth in core net income and the benefit from the share buyback program.
Free cash flow amounted to $2.5 billion (-17 percent USD) compared to $3.0 billion in prior year. The decrease of $0.5 billion was mainly driven by lower cash flows from operating activities and higher net investments.
Sandoz net sales were $2.6 billion (0 percent, -4 percent cc) in the fourth quarter, as 8 percentage points of price erosion, mostly in the U.S., was partly offset by volume growth of 4 percentage points. U.S. sales declined 17 percent due to increased industry-wide pricing pressure and continued customer consolidation. Excluding the U.S., net sales grew 4 percent (cc). Global Biopharmaceuticals grew 6 percent (cc).
Alcon net sales were $1.6 billion (+8 percent, +6 percent cc) in the fourth quarter. Surgical growth of +9 percent (cc) was driven by cataract consumables and IOLs. Vision Care grew +2 percent (cc) including continued double- digit growth of Dailies Total, partly offset by declines in the weekly/monthly portfolio. Stock in trade movements accounted for approximately 1 percent (cc) of Alcon growth in the quarter. Alcon’s results reflect the fourth consecutive quarter of net sales growth as a result of improved operations, innovation, and customer relationships.
Full Year Financials
Net sales were $49.1 billion (+1 percent, +2 percent cc) in the full year, as volume growth of 7 percentage points (cc), including growth from Cosentyx and Entresto, was partly offset by the negative impacts of generic competition (-3 percentage points) and pricing (-2 percentage points).
Operating income was $8.6 billion (+4 percent, +7 percent cc) as growth drivers, productivity, lower amortization, and a gain from achievement of a sales milestone related to the 2015 Vaccines divestment to GSK, more than offset generic erosion. Core adjustments amounted to $4.2 billion.
Net income was $7.7 billion (+15 percent, +12 percent cc) driven by higher operating income and income from associated companies. The prior year included exceptional charges related to a revaluation loss in Venezuela of $0.3 billion.
EPS was $3.28 (+16 percent, +14 percent cc) driven by net income growth and the benefit from the share buyback program.
Core operating income was $12.9 billion (-1 percent, 0 percent cc) broadly in line with prior year as sales growth and productivity fully offset generic erosion and growth investments. Core operating income margin in constant currencies decreased 0.3 percentage points, mainly due to generic erosion of Gleevec/Glivec, partly offset by growth drivers and productivity; currency had a negative impact of 0.3 percentage points, resulting in a net decrease of 0.6 percentage points to 26.2 percent of net sales.
Core net income was $11.4 billion (+1 percent, +2 percent cc), growing above core operating income due to higher core income from associated companies.
Core EPS was $4.86 (+2 percent, +3 percent cc) driven by growth in core net income and the benefit from the share buyback program.
Free cash flow amounted to $10.4 billion (+10 percent USD) compared to $9.5 billion in 2016. The increase was mainly driven by favorable working capital changes and lower legal settlement payments out of provisions.
Sandoz net sales were $10.1 billion (-1 percent, -2 percent cc) in the full year, as volume growth of 6 percentage points was more than offset by 8 percentage points of price erosion. Sales in the U.S. declined 12 percent mainly due to increased industry-wide pricing pressure and continued customer consolidation. Excluding the U.S., net sales grew by 4 percent (cc). Global Biopharmaceuticals grew 12 percent (cc).
Alcon net sales were $6.0 billion (+4 percent, +4 percent cc) for the full year. Surgical sales grew +5 percent (cc), driven by strong performance of the vitreoretinal portfolio and cataract consumables. Vision Care sales grew +3 percent (cc), driven by continued double-digit growth of Dailies Total.
Key Growth Drivers
Underpinning financial results in the fourth quarter is a continued focus on key growth drivers, including Cosentyx, Entresto, Promacta/Revolade, Tafinlar + Mekinist, Jakavi, Kisqali, Tasigna, Kymriah, and Gilenya, as well as Biopharmaceuticals and Emerging Growth Markets.
“Novartis had a good year in 2017. Cosentyx reached multi-blockbuster status, Entresto delivered over $500 million in sales and Alcon returned to growth. It was a landmark year for innovation resulting in a rich late stage pipeline,” Joe Jimenez, CEO, said. “With several key launches on the horizon and our new operating model in place, Novartis is poised for sustainable growth.”
2018 Outlook
Barring unforeseen events
Group net sales in 2018 are expected to grow low to mid single digit (cc).
From a divisional perspective, we expect net sales performance (cc) in 2018 to be as follows:
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Innovative Medicines: grow mid single digit
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Sandoz: broadly in line to a slight decline
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Alcon: grow low to mid single digit
Group core operating income in 2018 is expected to grow mid to high single digit (cc).
If mid-January exchange rates prevail for the remainder of 2018, the currency impact for the year would be positive 3 percentage point on net sales and positive 4 percentage point on core operating income. The estimated impact of exchange rates on our results is provided monthly on our website.
(Source: Novartis Pharmaceuticals Corp.)
Filed Under: Drug Discovery
