Novartis sees weak Q4 and year, and expects a 2017 repeat, putting Alcon's future in question

Joe Jimenez
Novartis CEO Joe Jimenez said the company will decide by year-end whether to keep, sell or spin off its struggling Alcon eye unit.

High drug prices may be the key topic of conversation in the industry but you wouldn’t know it from Novartis, where pressure on prices contributed to slower sales, operating and core profits in the final quarter and the year.

The Swiss drugmaker saw pricing pressure across its entire portfolio of products, where it shaved off 2%, even as it sold a larger volume, the company noted in its fourth-quarter earnings report today. In generics, volume growth of 9% was offset by 6% of price erosion. And those weak trends look like they will continue for another year, CEO Joe Jimenez said today, leading the company to initiate a $5 billion share buyback and at least consider a sale of eye unit Alcon.

"Unfortunately, 2017 is going to look a lot like 2016," Jimenez said in a call today, Reuters reports. Jimenez said he expects growth to begin toward the end of this year and to continue through 2020.

Net sales were off 2% for the quarter and the full year, as volume growth of 6% was not enough to overcome the negative impact of generic competition, which trimmed 4%, and pricing's downward pressure. Novartis' so-called growth products like Cosentyx and Entresto offered some salve for the pain, accounting for 37% of net sales for the quarter at $4.6 billion, up 19% from a year ago.

Jimenez did say that Novartis was less exposed than many competitors to the potential pricing pressures being discussed in the U.S. because it accounts for only about 30% of sales for Novartis, compared to 50% for many peers. He also pointed to the biosimilars that its generic unit Sandoz is developing, including two that are expected to launch in the U.S. this year.

“What better position to be in than with a $10 billion generics business, which can help healthcare systems to lower the cost of care with these biosimilars,” he said, Pharmaphorum reports.

Bernstein analyst Tim Anderson told investors that he thought Novartis reported decent fourth-quarter results, "especially relative to ultra-low expectations and capitulation that has occurred with the name." He said the company was actually slightly ahead of consensus on earnings per share with adjusted EPS of $1.12 per share. That compared to estimates of $1.09.   

Still, the drugmaker needs to do something in the short term, and eye unit Alcon looks to be a good place to start, given the drag it has been. The unit reported a $120 million operating loss, compared to nearly $30 million in income a year ago. Operating profit was off 38%.

The company said that it will look at all options for Alcon, “ranging from retaining the business to separation via a capital markets transaction” like an IPO or a spinoff. A decision is expected by the end of the year.

Sales at Alcon have been falling for several years and were down slightly this year to $5.8 billion. Those struggles at the unit led Jimenez to unveil a turnaround plan a year ago and to bring in F. Michael Ball, who had turned around Hospira before its $15 billion sale to Pfizer. But at the J.P. Morgan Healthcare Conference this month, the CEO said that the turnaround that he had hoped would bear fruit this year is taking “a bit longer.”

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