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Novartis Damaged By U.S. Economy
Melanie Lindner, 01.17.08, 2:35 PM ET

http://www.forbes.com/markets/2008/01/17/novartis-pharmaceuticals-update-markets-equity-cx_ml_0117markets29.html?feed=rss_markets

U.S. economic woes have stretched across the Atlantic and are now weighing on Swiss pharmaceutical company, Novartis.

Novartis (nyse: NVS - news - people ) released its fourth-quarter and full-year results on Thursday, and blamed its 42.0% profit decline on weak performance in the U.S. and restructuring costs. The company said that cutting 2,500 jobs worldwide resulted in a $444.0 million charge to its fourth-quarter results. However, Novartis hopes that the job cuts will start saving the company $1.6 billion per year by 2010.

In the period ending Dec. 31, Novartis said its profits reached only $913.0, or 41 cents per share, compared with $1.66 billion, or 70 cents per share in the fourth quarter of 2006. But for the full year of 2007, profits jumped 66.0% to $11.9 billion, or $5.15 per share, compared with $7.2 billion, or $3.04 per share in the similar period of 2006.

Sales for the fourth quarter jumped to $9.9 billion from $9.4 billion in the prior year quarter, while sales for the full year reached $39.8 billion, compared with $37.2 billion in 2006.

It seems Novartis' problems are mainly in the U.S. According to Chief Executive Daniel Vasella: "The weak performance is exclusively due to the U.S. market." Joe Jimenez, head of Novartis' U.S. pharmaceutical division, said he expects the company's most important market to begin showing growth in the second half of 2008. However, he noted that "in total the U.S. will be down versus a year ago."

Novartis, which makes drugs like Diovan, used to treat hypertension, and Ritalin, used to treat attention deficit disorder, has been struggling to jump through the regulatory hoops of the U.S. Food and Drug Administration. The FDA has asked Novartis to perform further trials of its diabetes drug Galvus, causing the company to warn investors that the potential big seller would not be resubmitted for approval before 2010.

According to Citigroup analyst Amit Roy, Novartis offers "relatively low-risk long-term earnings growth." However, with the recent product suspension of Zelnorm, used to treat irritable bowel syndrome, and early generic erosion of Lotrel, a hyertension treatment, Lamasil, an anti-fungus treatment, and Famvir, an antivirus medication, sales growth will be limited in the near-term. Thus, due to the lack of neat-term catalysts, Roy rates Novartis "hold."

On the New York Stock Exchange, shares of Novartis dropped $2.38, or 4.3%, to $53.07, in Thursday midday trading. On the Swiss Exchange, Novartis closed down 2.05 Swiss francs, or 3.3%, to 59.20 francs.