Novartis International AG has posted 7 per cent growth in net income during the first quarter ended March 2013 to US$ 2.4 billion and its net sales increased marginally by 2 per cent to $14,016 million from $13,735 million in the corresponding period of last year.
Excluding the impact of patent expiries, underlying sales grew 7 per cent. This was fuelled by growth products such as Gilenya, Afinitor, Tasigna, Galvus, Lucentis, Xolair, Arcapta Neohaler/Onbrez Breezhaler and Jakavi, which together contributed $4.2 billion or 30 per cent of Group net sales, up 14 per cent over the prior-year period. Generics impacted sales by approximately $500 million, mainly due to Diovan. US sales continued to benefit from the delayed entry of generic competition for Diovan monotherapy.
Commenting on the results, Joseph Jimenez, CEO of Novartis, said: "Novartis delivered a solid quarter, with all divisions contributing to growth. Significant expansion in our growth products helped to offset the impact of patent expirations. Vaccines and Diagnostics performance improved, and achieved a key approval for Bexsero in the EU while Consumer Health returned to sales growth. Our focus on innovation continued to pay off, with eight approvals in the EU and US, and an FDA breakthrough therapy designation for LDK378 in lung cancer. I am pleased with our solid start to the year."
Commenting on the change in the CFO position, Joseph Jimenez said: "I want to welcome Harry Kirsch to the position of CFO of Novartis. His deep knowledge of Novartis pharmaceuticals operations and his productivity focus will now benefit the full portfolio. I want to thank Jon Symonds for the enhancements he brought to the business, our finance processes and organization. I am pleased that Jon will continue to work as an advisor to me until the end of the year, and to facilitate the transition."
Pharmaceuticals net sales were in line with previous year at $7.9 billion, with strong volume growth of 9 percentage points more than offsetting generic competition. Pricing was flat. Pharmaceuticals operating income increased 6 per cent to $2.5 billion, primarily due to restructuring charges taken in 2012 related to the US General Medicine business.
Alcon delivered net sales of $2.6 billion with steady growth in Ophthalmic Pharmaceuticals and Vision Care compensating for softer growth in Surgical. Surgical was impacted by a slowdown of global cataract procedures and reduced sales growth of capital equipment. New equipment sales weakened due to strong sales in the fourth quarter of 2012 coupled with a strong first quarter 2012 comparator. Equipment sales are expected to remain soft ahead of a refresh of the portfolio later in the year.
Alcon operating income was up 13 per cent to $412 million driven by revenue growth and continued productivity improvements and cost containment measures.
Sandoz net sales grew 6 per cent to $2.3 billion. Volume grew 12 percentage points, driven by strong double-digit sales growth in many European and Asian markets, as well as biosimilars. Sandoz operating income decreased 16 per cent to $251 million, due to USD 79 million of provisions for legal matters.
Vaccines and diagnostics net sales reached $ 327 million, up 9 per cent over the previous-year quarter, due to bulk paediatric shipments, a strong influenza late season in the US and pre-pandemic sales. Operating loss was reduced to USD 157 million from USD 173 million in the 2012 period. Core operating loss was USD 98 million compared to USD 118 million in the previous year. Novartis made significant progress on innovation in the first quarter, with eight regulatory milestones in the EU and US.
Net sales in Emerging Growth Markets grew 9 per cent in the first quarter, contributing $3.5 billion or 25 per cent to Group net sales. In China, net sales were up 21 per cent in the first quarter. Russia net sales expanded 33 per cent in the quarter.
There were a total of 58 health authority inspections during the quarter, 10 of which were conducted by the FDA. The majority were assessed as good or satisfactory.
As of March 31, 2013, net debt stood at $14.9 billion, compared to $11.6 billion at December 31, 2012. The net increase of $3.3 billion was mainly driven by a temporary increase in debt by $1.2 billion and a decrease in liquidity by $2.1 billion. The 2012 dividend payment of $6.1 billion was paid during the quarter. Novartis was downgraded by one notch by Moody's in February 2013. The long-term credit rating for the company continues to be double-A (Moody's Aa3; Standard & Poor's AA-; Fitch AA).
Harry Kirsch, 48, moves from CFO of the Pharmaceuticals Division to Group CFO starting May 1, 2013. Kirsch, who joined Novartis in 2003 from the position of CFO of Procter & Gamble's global pharmaceuticals business, has been recognized for his ability to improve productivity, and for his leadership style.
Group net sales in 2013 are expected to be in line with 2012 in constant currencies, after absorbing the impact of generic competition, which could amount to as much as $3.5 billion. Excluding the impact of generic competition, Group net sales would grow at least in mid-single digits in 2013.
Group core operating income in constant currencies is expected to decline in 2013 in mid-single digits as a result of generic competition and continued investment in an unprecedented number of launches. Core operating income (excluding patent expirations) is expected to grow ahead of underlying sales in 2013.