Swiss drug giant Novartis saw its fourth-quarter net profit tumble 42% to £931 million, falling below analysts’ expectations, as restructuring costs and skinny US sales ate into earnings.

The fall in profit came as no real surprise, however, as the company had already unveiled the planned reshuffle of its operations, including 2,500 job losses, back in December, and said it would take a hit of $444 million in the fourth quarter as a result.

The group also sounded the warning bell over the impact of generic competition on its sales at the time, and said its restructuring programme, crowned Forward, is specifically designed to help it stay competitive “in a dynamically changing environment”, and generate savings of $1.6 billion by 2010.

Overall, sales during the period climbed 6% to $9.93 billion, but strong performances from around the globe and the generics unit Sandoz and Consumer Health division were dampened by weak turnover in the US, which dropped 15% to £3.07 billion, largely on the back of generic competition, and the vaccines unit, which is more active during the third quarter.

On the plus side, the company said it booked record results for the full year, with 8% organic growth in turnover to nearly $40 billion helping to drive a 66% increase in net income to $12 billion.

The Sandoz, Diagnostics and Vaccines all turned in double-digit growth, but sales were let down again by a poor performance in the US during 2007, following the withdrawal of Novartis’ IBS drug Zelnorm (tegaserod) and, as previously mentioned, the loss of patent protection for Lotrel (almodipine/benazepril), Lamisil (terbinafine), Trileptal (oxcarbazepine) and Famvir (famciclovir) enabling copycat drugs to eat into market shares. This group of drugs had combined total net sales in the US of $3.1 billion in 2006, which fell to $1.7 billion last year.

But Europe, Latin America and key emerging markets managed to achieve double-digit growth as many established drugs continued to shine: the high blood pressure medicine Diovan (valsartan) grew 16% (in local currencies) to overshoot $5.0 billion for the first time; the cancer therapy Gleevec/Glivec (imatinib) jumped 14% to $3.1 billion; and Sandostatin (octreotide acetate), for acromegaly and various neuroendocrine and carcinoid tumors, climbed 7% to smash the $1 billion-barrier and gain blockbuster status.

Future looks bright
The strong contributions from the majority of its healthcare businesses look set to continue into next year, and Novartis says it is expecting another year of record net sales and earnings in 2008. Net sales from continuing operations are forecast to rise at a mid-single-digit rate, and at a low-single-digit growth rate in the pharmaceuticals division, both in local currencies.

The group claims it is on the verge of a new growth cycle, and that it has an excellent pipeline, one that is “diversified, yet focused solely on healthcare and in businesses with dynamic growth potential going beyond patented prescription pharmaceuticals to include generic pharmaceuticals, preventive vaccines and diagnostics, and targeted consumer health products”.

“The 15 approvals for new prescription medicines obtained in the US and in the EU lay the foundation for a new growth cycle in pharmaceuticals,” commented Novartis chief Dan Vasella.

Following a rather rocky first half of the year, which will still be taking a hit from the loss of protected sales in the US, ongoing launches for many new medicines – including Exforge (amlodipine/valsartan), Tekturna/Rasilez (aliskiren), Lucentis (ranibuzumab), Tasigna (nilotinib), Exelon Patch (rivastigmine) and Aclasta/Reclast (zoledronic acid) – are expected to help the pharmaceuticals division “return to dynamic growth in the second half of 2008”, he stressed.