Restructuring costs depress the profit of the Swiss pharmaceutical company.
(Photo: AFP)
Frankfurt, Zurich Costs for the restructuring of the pharmaceutical division caused the profit of the Swiss pharmaceutical company Novartis to shrink last year. Operating profit fell 21 percent to $9.2 billion, excluding currency effects, the minus was 13 percent, as the company reported on Wednesday morning.
The bottom line is that net profit slipped to almost seven billion dollars. In the previous year, the sale of the stake in the domestic competitor Roche had caused a jump in profits to 24 billion dollars.
Novartis boss Vasant Narasimhan, who has been in office since 2018, is driving the transformation of the once broadly diversified group into a pure pharmaceutical company. Business areas such as over-the-counter medicines and ophthalmology (Alcon) were sold or spun off and taken public. The separation from the Sandoz generics division is to be completed this year, for which the company is said to be on schedule.
Novartis focuses on the USA
Novartis merged its pharmaceuticals and oncology divisions last year and focused more on the world’s largest drug market, the USA. In the coming years, the company intends to move up from tenth place to the group of the five largest providers. Distribution was organized into two distinct organizations: one for the US and one for the rest of the world. Restructuring costs of $1.2 billion were incurred in 2022.
Thanks to good growth in top products, including the heart drug Entresto, Novartis was able to increase its sales by four percent in the past fiscal year after adjusting for currency effects. However, negative currency effects ensured that sales reported in dollars fell by two percent to 50.5 billion.
Novartis shares on the stock exchange fell by around 1.5 percent on Wednesday morning. The reason might be the missed sales targets, since the psoriasis drug Cosentyx in the USA grew more slowly than expected.
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In the current year, Novartis aims to grow again in the low to mid single-digit percentage range at constant exchange rates. Core operating income is targeted to increase by a similar amount.
In the future, Novartis will focus entirely on innovative medicines. The area is expected to grow by an average of more than four percent annually in the coming years up to 2027. Novartis aims to achieve a core margin of more than 40 percent of net sales in the future. In 2022, the company was able to increase its core operating margin by 0.9 percentage points to 33 percent.
Uncertainty about the development of drug prices
However, many analysts do not follow this optimistic growth estimate in their own models. According to the experts from UBS, for example, it is currently not clear which positive news – such as product approvals – will contribute to the growth of Novartis from 2024.
There are also uncertainties about how drug prices will develop in the future and whether the rising costs of drug manufacturers due to inflation can be offset by price increases. In the United States, for example, the Inflation Reduction Act limits price increases for certain drugs that are distributed through Medicare, the state health insurance system. And in European countries, including Germany, health policy is currently aimed at regulating prices more closely again after the high cost increases in the corona pandemic.
With the restructuring of the pharmaceutical business, Novartis wants to save around 1.5 billion dollars by 2024. In the future, the group also wants to tailor new developments more specifically to the requirements of the US market, which Novartis estimates at one trillion dollars for innovative drugs. The “US First Mindset” at Novartis also includes the plan to include more patients from the American market in clinical trials and to develop more talent with a US focus.
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