Novartis CEO stands by emerging markets even as China economy continues to weaken

Novartis CEO Joe Jimenez

China's economy is a mess and other emerging markets are flailing about as well. So what is pharma CEO to do if they have bet big on growth in the EM realm? Keep on keeping on, says Novartis ($NVS) CEO Joe Jimenez.

The leader of Swiss drugmaker told CNBC that you invest in markets like China for the long haul. And even if growth there has fallen into the mid-single digits, Reuters reports he told CNBC, it is still better than what pharma companies are seeing in the rest of the world. He said that the generics market in China should continue to provide some growth for now.

"We are going to live through the volatility," the CEO said. "We have seen a bit of a slowdown in emerging markets particularly China but in our business that means moving from mid-double digit growth rates to now in the mid-single digit growth rates. If you think about the global healthcare market maybe growing at 2 or 3 percent, this is still incremental growth."

While Q2 revenues for the Swiss drugmaker fell to $12.7 billion, down 5%, and earnings were off 31% to $0.77 a share, emerging markets returned 8% growth for the company and 7% in China.

Novartis EM growth was well above the average. Actually, growth in emerging markets is only barely beating growth in the world's largest pharma market right now, Bernstein analyst Tim Anderson pointed out to investors during the Q2 earnings report season. Emerging market growth was only 5.5% across some of Big Pharma's biggest, the least in two years and that only narrowly bettered the 4.7% growth in the U.S.

And growth in China is shrinking fast, Anderson found. The 15.1% growth rate pharma enjoyed in the first quarter in China collapsed to just 4.6% by Q2. China sales at Eli Lilly ($LLY) and GlaxoSmithKline ($GSK) were hardest hit but they also were off for Novartis, AstraZeneca ($AZN), Merck ($MRK) and Pfizer ($PFE). Only Roche ($RHHBY) and Sanofi ($SNY) posted stable-to-increasing growth in China for the period, he noted.

A lot has changed in just a couple of months ago, when Anderson was telling clients that multinational drug companies were more than covering their costs in EMs, and that they needed to be there for the upside as the "gradual, yet inevitable shift from older off-patent medicines to more lucrative, novel, on-patent medicines," paid off.

It is not that the big players can abandon their investments there but it may get tougher before it gets better. The question right now, Anderson said, is whether the Q2 numbers are just a blip, "or does it mark the beginning of a more prolonged deceleration?"

And there is also the ripple effect from the interconnections among China and the rest of the world. China's troubles don't bode well for Western markets U.S. Federal Reserve Chairwoman Janet Yellen said during the Fed meeting Thursday in which U.S. interest rates were left unchanged. She said "concerns about growth in China and other emerging market economies have led to notable volatility in financial markets." And that, she said, "may restrain U.S. economic activity somewhat and are likely to put further downward pressure on inflation in the near term."

- here's the Reuters story 
- get the Morningstar transcript of Yellen's remarks

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