Growth Spotlight: Novartis AG

by Investing Daily
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Submitted by Investing Daily as part of our contributors program.

By: John Persinos

Swiss drugmaker Novartis AG (NVS) in April reported first-quarter 2012 earnings per share (EPS) of $1.27, down from the $1.4 posted a year earlier. First-quarter revenue fell to $13.7 billion from last year’s $14 billion. Earnings dropped 18 percent, to $2.3 billion.

Novartis’ revenue was hit by generic drug competition and manufacturing problems at its factory in Lincoln, Nebraska. This year, Novartis faces addition­al challenges to revenue, as its top-selling drug Diovan for hypertension loses patent protection.

However, the company isn’t taking patent protection lying down. Its recent $50 billion acquisition of Alcon (ACL), a developer of eye-care products, as well as the launch of new drugs, will help offset any patent losses. The com­pany expects 2012 revenue to be roughly in line with 2011.

Novartis’ portfolio contains plenty of proven, big-selling drugs. The compa­ny’s sales of Afinitor, for the treatment of advanced kidney cancer, leaped 60 percent in the first quarter to $143 million; sales of the chronic leukemia drug Tasigna jumped 39 percent to $209 million; and sales of eye drug Lucentis in­creased 30 percent to $567 million. Moreover, the company’s Gilenya, the first oral treatment approved for multiple sclerosis, continues to capture market share and generated sales of $247 million during the period.

Novartis’ Alcon unit also performed well, racking up a 5 percent increase in revenue to $2.5 billion. On the downside, the company’s Consumer Health segment endured a 20 percent drop in first-quarter sales to $932 million, stemming from the suspension of its troubled Lincoln manufacturing site. However, the company has now resolved these glitches and expects to resume full-throttle production by mid-year.

Novartis continues to funnel substantial resources into developing new prod­uct lines. The company spent $9.6 billion in research and development (R&D) last year, about 16.4 percent of revenue. This R&D commitment is paying off with a deep bench of potentially profitable products. The company recently an­nounced plans to make regulatory filings for more than 60 new drug treatments through 2015.

Novartis also reached an agreement to acquire the Chinese vaccines compa­ny Zhejiang Tianyuan Bio-Pharmaceutical Co, as part of a strategic push into the fast-growing and potentially vast vaccine market in China.

In addition to its growth prospects, Novartis sports an attractive dividend yield of 4.49 percent. The company’s earnings yield is around 7 percent, which means it pays out nearly 65 percent of earnings as dividends

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