IMS Company Profiles - Report Buyer

IMS COM PANY PRO FILES NOVARTIS
An a lyst Com ment
Fol low ing the re lease of Q4 re sults, Cowen & Co an a lysts (Jan u ary 2009) noted that the re sults were “dis -
ap point ing” but that the “out look re mains ro bust” They high lighted that Novartis re ported sig nif i cantly
lower-than-ex pected EPS and lack lus ter rev e nues. They noted that the Phar ma ceu ti cal and Vac cines
busi nesses dem on strated good mo men tum, in Q4, but that Sandoz and Con sumer “con tinue to face
head winds.” The con cluded that they “con tinue to be lieve that NVS should de liver top-tier growth
through 2015.” The analysts rated Novartis “Outperform.”
Mor gan Stan ley an a lysts (Jan u ary 2009) once again rated Novartis “Over weight” and noted that Q4 rev -
e nues were 2% be low their ex pec ta tions and 4% be low the con sen sus. They put this down to cur rency
ef fects and the nu mer ous “one-time” items which in creased op er at ing ex penses. Con sumer Healthcare
how ever, was con sid er ably lower than they had an tic i pated, and the an a lysts sug gest that this shows
that the busi ness is more cy cli cal than they had previously anticipated.
In June 2008, Mor gan Stan ley an a lysts re it er ated their ‘Over weight’ rat ing on Novartis fol low ing its vac -
cines day, which they said, “in di cates fore casts are set to dou ble. The Novartis vac cines day con firmed
that the phar ma ceu ti cal in dus try is on the cusp of con sid er able tech no log i cal break through, with three
new po ten tial vac cines set to be launched ahead of 2010/11. As we high lighted in April 2008, we con tinue
to be lieve that the meningococcal vac cine mar ket is set to grow from circa $1 bil lion cur rently to circa $5
bil lion by 2015 (e), with Novartis set to be the dom i nant player. With up side to both rev e nues and mar gin
es ti mates, con sen sus vac cines fore casts may need to dou ble un der our blue sky sce nario, thereby adding
circa 5-15% to longer term EPS forecasts.”
The an a lysts state that they like “Novartis’ di ver si fied healthcare busi ness model, with pharmaceuticals,
vac cines, generics and con sumer health. In 2013, we es ti mate that only 45% of Novartis’ rev e nue will
come from small mol e cule pharmaceuticals.” They also added that they con sider that in ves tors have
failed to ap pre ci ate the sig nif i cance of Novartis’ vac cines port fo lio; they think this could add more than
15% to con sen sus EPS fore casts. And they think that al though the Alcon trans ac tion came at a high price,
Novartis will now have a smooth earn ings pro gres sion from 2010 to 2015, un like many of its peers. They
see key value driv ers as Glivec and Tasigna in on col ogy/CML, Tekturna (which should have rev e nues of
$830 mil lion in 2014, when Diovan faces ge neric com pe ti tion), non-pharma as sets, such as vac cines,
generics and con sumer health) and, in par tic u lar, the vac cines busi ness (which should have rev e nues of
$4 bil lion in 2013, com pared to $1.5 billion in 2007, driven by Menveo and MenB).
In re ports through 2008, Mor gan Stan ley an a lysts have noted the loss in sales fol low ing 2007’s launch of
ge neric ver sions of Lotrel, Trileptal, Lamisil and Famvir, and the with drawal of Zelnorm. They es ti mate
that Novartis has lost around $3.2 bil lion in branded phar ma ceu ti cal rev e nues and 10% of its 2006 group
rev e nues. They es ti mate this ac counts to $2.8 bil lion of gross profit. How ever, they high lighted that in
2011, Novartis will en ter one of the tough est pe ri ods for any of the pharma ma jors. Be tween 2011-2015,
they ex pect ge neric com pe ti tion to emerge for prod ucts that will gen er ate rev e nues of $15.6 bil lion in
2010, rep re sent ing 55% of 2010 phar ma ceu ti cal rev e nues and 35% of 2010 group rev e nues. Ap prox i -
mately 40% of the rev e nues ex posed to pat ent ex pi ra tions are within the US, where ge neric en trants
typ i cally capture 80-90% market share during the first three months.
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