Novartis Q2 profit up 12%; backs FY08 forecast - update 2

(RTTNews) - Thursday, Swiss healthcare company Novartis AG (NVS | Quote | Chart | News | PowerRating) reported a 12% rise in its second-quarter profit, driven by strong segmental sales, mainly in Pharmaceuticals and generics subsidiary Sandoz. The company also affirmed its earnings and sales outlook for fiscal 2008.

Second-quarter net income was $2.26 billion, compared with $2.02 billion a year ago and $2.32 billion in the first quarter. Net income attributable to equity holders grew to $2.25 billion from $2.01 billion in the prior-year quarter. Earnings per share were up 16% to $0.98 from prior year's $0.85. For the preceding quarter, the company earned $1.02 per share.

The company also reported net income from continuing operations of $2.27 billion, up 17% from $1.94 billion last year. Earnings per share form continuing operations grew 20% to $0.98 from $0.82 in the previous year.

On average, three analysts polled by First Call/Thomson Financial expected earnings of $0.93 per share for the quarter.

Novartis's quarterly net sales from continuing operations rose 14% to $10.73 billion from $9.40 billion last year. In terms of local currency, the sales growth was 5%. Analysts were looking for sales of $10.20 billion.

The company attributed the increase in sales to strong Pharmaceuticals business, which grew ahead of expectations, overcoming the impact of challenges in the U.S. in 2007. While Vaccines and Diagnostics expanded at a fast rate, difficult conditions in the U.S. led to moderate growth in Sandoz and Consumer Health, the company noted.

Total Pharmaceutical sales were $6.93 billion, a 14% rise from last year. In local currencies, Pharmaceutical sales rose 5%, driven by cardiovascular and oncology brands as well as recently launched products.

Oncology sales of $2.1 billion represented 30% of the group's total net sales. Gleevec/Glivec, Femara and Exjade were the main growth drivers in the sector. Gleevec/Glivec sales were $1.8 billion and Femara sales totaled $561 million in the quarter.

The Cardiovascular franchise grew 9% in local currency, helped by the sales of high blood pressure treatment Diovan and increasing contributions from Tekturna/Rasilez and Exforge. Diovan generated sales of $2.9 billion in the quarter.

In the U.S., pharma sales were down 3%, hurt by 2007 generic entries for four products and the marketing suspension of irritable bowel syndrome drug Zelnorm. Outside of North America, all regions showed strong performances. Sales in Europe and Japan rose 8% and 7%, respectively, in local currencies. While Latin American sales were up 11%, the rest of the world posted 18% sales growth, both in local currency terms.

The company's Vaccines and Diagnostics business posted quarterly sales of $322 million, a 28% increase from $251 million a year ago. Higher deliveries of polio vaccines and blood testing diagnostics helped to offset a modest decline in TBE vaccines, with sales limited by capacity, the company said.

Sandoz posted second-quarter sales growth of 13% to $1.95 billion. While key markets including Russia, Poland, Turkey, Canada and Switzerland delivered strong results, the U.S. continued to suffer mainly due to the lack of new product launches in 2008.

Consumer Health generated sales of $1.53 billion in the quarter, 12% growth from the prior-year's $1.37 billion.

For the first half of fiscal 2008, the company earned $4.58 billion, up 9% from $4.19 billion a year ago. Earnings per share were $2, compared with $1.77 in the prior-year period. Net income from continuing operations rose 13% to $4.57 billion from $4.04 billion in the previous year.

Net sales rose 11% for the six-month period to $20.6 billion as higher sales volumes contributed two percentage points of growth, while currency translation added nine points. Price changes and acquisitions had no significant impact. In terms of local currency, the sales growth was 2%.

Among others in the sector, Johnson & Johnson (JNJ | Quote | Chart | News | PowerRating) has reported an 8% increase in its profit for the second quarter, helped by strong sales of consumer products and medical devices that offset a marginal increase in sales of pharmaceutical products. The New Brunswick, New Jersey-based company's sales were up 8.7% in the quarter.

Other competitors, Pfizer Inc. (PFE | Quote | Chart | News | PowerRating) and Merck & Co. Inc. (MRK | Quote | Chart | News | PowerRating) are slated to announce their second-quarter results on July 23 and July 24, respectively. Analysts forecast Merck to earn $0.83 per share for the quarter, on revenues of $6.04 billion. Pfizer's earnings are projected to be $0.54 per share, with sales totaling $11.47 billion.

Novartis, on July 7, purchased a 25% stake in eye care company Alcon Inc. (ACL | Quote | Chart | News | PowerRating) from Nestlé S.A. for $10.4 billion. In an optional second step, Novartis has the right to acquire the remaining 52% Alcon stake held by Nestlé between January 2010 and July 2011 for up to about $28 billion.

On July 10, the company purchased an additional 51.7% stake in Swiss biopharmaceutical Speedel Holding Ltd., and it has become a majority-owned subsidiary. Novartis now holds 61.4% of the outstanding Speedel shares. A mandatory public tender offer will start in August to buy Speedel's remaining shares, with total acquisition costs estimated at CHF 907 million, or $880 million.

The company also said its acquisition of privately held U.S. biotechnology company Protez Pharmaceuticals will provide rights in the U.S. and Europe to PZ-601, an antibiotic in Phase II development that has shown potential to treat life-threatening hospital infections.

In addition, Novartis and Alnylam Pharmaceuticals Inc. (ALNY | Quote | Chart | News | PowerRating) have decided to extend their RNAi therapeutics collaboration for another year, through October 2009.

Looking ahead, Novartis confirmed its fiscal 2008 expectations for record net sales and earnings from continuing operations entirely focused on healthcare. Net sales from continuing operations for the group are expected to rise at a mid-single-digit rate, and at a low-single-digit growth rate in the Pharmaceuticals Division, both in local currencies. Sandoz is now expected to achieve mid-single-digit net sales growth for the full year in local currencies.

Further, the company noted that its key R&D projects are on track for 2008 submissions, particularly Afinitor for advanced kidney cancer and Menveo meningococcal meningitis vaccine.

NVS closed Wednesday's trading at $56.43, down $0.27, on a volume of 2.69 million shares.

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