Novartis braces for $3.5B hit to 2013 sales

Generics, consumer health problems eroded 2012 results, with sales down 3% to $56.7B
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Flat sales and lower profits. These aren't predictions that shareholders like to hear. But like other Big Pharmas before it, Novartis ($NVS) faces generic competition for its biggest drugs. And like its rivals, the Swiss drugmaker is bracing for continued fallout.

Cheap generics are expected to hack as much as $3.5 billion from 2013 sales, the company notes. Copies of Diovan, a blood pressure drug, and Femara, a cancer treatment, are accounting for $1.5 billion and $1 billion of that, respectively. Growth from newer drugs will make up the difference, more or less, but not enough to increase revenue. So, for the second year in a row, Novartis expects flat sales. Profits are expected to shrink, too, thanks to that sales erosion.

A management hand-off--from Chairman Daniel Vasella to Joerg Reinhardt, who returns to Novartis after a stint at Bayer--overshadowed the numbers news. But the company's earnings highlight the tasks Reinhardt and CEO Joe Jimenez face ahead, if Novartis is to return to growth in 2014 as promised today.

For 2012, the basics are these. Full-year net sales amounted to $56.7 billion, with the fourth quarter accounting for $14.8 billion of that. Core net income stood at $12.8 billion and $3.1 billion, respectively. EPS: $5.25 for the year. That amounts to a 3% drop in full-year sales, or flat sales in constant currencies.

Newer products did grow by 26% during the fourth quarter, ex-currency changes, to $3.1 billion. And the Diovan franchise hasn't lost as much steam as one might expect, partly because the sole generics maker yet allowed to sell Diovan copies in the U.S. has been slow off the mark (generic versions of Diovan HCT, a combo drug, are taking a cut, though). If copies of straight-up Diovan continue to lag, that franchise may not lose the full $1.5 billion Novartis is now predicting.

Another job to finish: Consumer health manufacturing upgrades. The company's 2012 results suffered from problems at a consumer health plant in Nebraska, which had to stop production after FDA found manufacturing violations there. Multiple products--including Excedrin, NoDoz, Maalox, Benefiber and Theraflu -- were recalled. Fixes have taken longer than initially expected, and though Novartis has managed to turn out some consumer brands elsewhere, many products remain missing from store shelves. Jimenez has stopped predicting when, exactly, that plant will be back up to full speed.

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