China, Currency Effects Hit Novartis’s Emerging Market Sales
This article was originally published in PharmAsia News
Executive Summary
Emerging markets presented a mixed bag for Novartis last year, with growth in China continuing to slow in the fourth quarter but increasing in smaller more dynamic countries such as Turkey. Sandoz remained strong in Asia but eye care unit Alcon is set for major changes.
The main story at Novartis AG‘s annual results briefing was the overhaul of its global eye care business Alcon Inc., a new $1bn cost savings plan, and the centralization of manufacturing planning, and emerging markets attracted little attention, continuing to give out mixed signals.
For the full calendar year, the Swiss group reported that its net pharma sales in what it calls emerging growth markets (EGMs) - comprising all global markets except North America, Western Europe, Japan, Australia and New Zealand - were up by 9% at constant currencies to $7.83bn.
While this accounted for a constant 26% of the global pharma total, the figure fell by 4% in dollar terms, reflecting the major impact of exchange rate movements over the past year.
Net sales from continuing operations in EGMs grew by a more modest 4% at constant currencies in the fourth quarter, "reflecting a general slowdown in the Chinese economy," the firm said. On the same basis, China grew by just 5% in the three months, left behind by much smaller but more dynamic player Turkey, which surged by 16%.
12-month sales in Japan, which fell by 6% at constant currencies to $2.2bn, were hit by the genericization of Diovan (valsartan).
The Chinese slowdown marked a continuation of the trend seen in the third quarter, when Novartis said emerging markets were weaker in general, dragged down in large part by Alcon's weak performance (Also see "Alcon Drags Down Novartis’s Emerging Markets Performance" - Scrip, 28 Oct, 2015.).
The transition now seems to have been generally accepted by the market after a string of lower figures, and attracted no attention at Novartis’s fourth quarter results briefing. The company said at a recent company meeting in Shanghai that it remains committed to bringing new products to, and investing in, China despite the lower growth (Also see "Novartis Restresses China Commitment As It Outlines 2016 Plans" - Scrip, 4 Jan, 2016.).
Alcon was again lackluster in Asia in the fourth quarter, and the firm saw its 2015 EGM sales fall 14% in dollar terms to $2.39bn, and it broader weak performance has now resulted in decisive restructuring moves.
As part of these, around $3.8bn-worth of Alcon drug products are to be moved over to Novartis's Pharmaceutical division (although retaining Alcon branding). Surgical lines and equipment will be retained within Alcon, and Alcon CEO Jeff George has been replaced by ex-Hospira Inc. CEO Mike Ball.
Sandoz Stronger
In the Sandoz International GMBH generics division, full-year Asia-Pacific sales were up by 13% at constant currencies, and 2015 EGM sales rose 5% to $2.18bn, but a flattering currency impact again meant they fell 14% in dollar terms.
Mature, non-promoted products with a total of $0.9bn in sales last year will be moved across this year to Sandoz, which has specialist expertise in handling such drugs in emerging and other markets.
There has been speculation that India's Sun Pharmaceutical Industries Ltd. is on the hunt for a portfolio of such products in Japan, although it is not yet clear however whether Novartis might engage in such country-specific business transfers.
Takeda Pharmaceutical Co. Ltd. recently decided to move part of its mature Japanese portfolio over to a new joint venture with Teva Pharmaceutical Industries Ltd. (Also see "Takeda Lays Out Teva JV Impact, Confirms Blopress Transfer" - Scrip, 28 Dec, 2015.).
Novartis did not break out country-by-country EGM figures, but did note in the results that its main growth products in the group included combination antihypertensive Exforge (valsartan and amlodipine), which "continued to experience significant growth in China and other emerging markets."
Total group net income from continuing operations in 2015 was $7.0bn (-34%) in 2015, on net sales of $49.4bn (-5%). The deteriorating economic conditions in Asia, and China particularly, also appeared to be having other impact in that the company said it had to make an "increase in provisions for bad debt in Asia", which had a negative effect on core operating income.