Novartis Is Struggling To Compete

5. December 2015
Novartis Is Struggling To Compete

Nov. 2, 2015

Stocks-Fall
Summary:
Novartis has seen its operations deteriorate in recent years.
Both margins and top-line growth have contracted in 2015.
With rising competition and a strong U.S. dollar persisting, Novartis's share price could continue to decline in coming quarters.

Swiss drug maker Novartis (NYSE:NVS) continues to struggle as declining demand and increasing competition for products in its portfolio weigh on earnings. Both its eye care business, Alcon, and its painkiller drug, Voltaren, have underperformed in recent quarters, weighing on both revenue and margins. Novartis presents an attractive short opportunity as its operations continue to falter.

In the third quarter, the drug maker reported core-earnings that came in at $1.27 per share, representing an annual decline of 0.8%, while missing estimates for $1.30. The weaker earnings came alongside revenue that fell 5.6% from the previous year to $12.3 billion.

Its Alcon segment saw sales of $2.3 billion, down 2% from the previous year. The weakness was mainly due to lower sales of surgical equipment. In recent years, competition in the intraocular lens space has heated up, leading to lower margins. This, alongside slowing demand for surgical equipment in the U.S., as well as Asia, pushed down overall results.

Furthermore, Voltaren's profits declined at a 2% annual pace to $3.06 billion, missing estimates for $3.13 billion. With the drug, competition was an issue, but currency fluctuations did a lot of damage as well. On a currency adjusted basis, the painkiller segment rose 13% annually.

Below is a chart a both revenue and operating margins for Novartis. As was stated, there are a multitude of issues plaguing top-line growth at present time for the company. Since 2012, revenue has fallen 15%. Slowing sales in its large eye care segment has been an issue management wants to take care of in coming quarters. "[Alcon's] a good business but it's suffering from some intense competition, as well as we have not been as innovative as we should be," Chief Executive Joe Jimenez explained in a conference call to reporters. Moreover, margins have contracted as a result of rising competition among its generics. In 2015 alone, operating margins sharply contracted.