Strength of the US Dollar Takes a Toll on Novartis Revenues



Revenue performance

Novartis (NVS) missed analysts’ revenue estimates in 1Q15 by 4.5%. Revenues from continuing operations fell by 7% from the fourth quarter of 2014. Lower international revenue due to the strong US dollar led to a 10% decline in revenue from continuing operations. At constant currency, revenue was up 3%. The company generated ~33% of revenues from the US market in 2014.

Novartis has had a mixed performance over the last four quarters. It has beaten Wall Street estimates for the last two out of four quarters. In 1Q14 and 2Q14, it missed Wall Street revenue estimates by 2.4% and 1.1%, respectively.

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Growth drivers

Novartis’s revenues were driven primarily by the following three segments, excluding the negative impact of currency:

  • Sandoz up by 9%
  • Alcon up by 5%
  • Pharmaceuticals up by 1%


Sandoz’s generic growth was driven primarily by the following:

  • Biosimilars grew by 19% at constant currency and generated revenues of ~$122 million, which is 5.5% of Sandoz’s revenues.
  • Growth in emerging markets such as Latin America grew by 16%.
  • Germany grew by 10% on account of strong performance from new product launches.
  • The US market grew by 13%, driven by strong performance in dermatology and oncology.
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The Alcon segment experienced growth across all three businesses:

  • Surgical grew more than 6%.
  • Ophthalmic grew more than 6%.
  • Vision care grew by 3%.

Novartis sold more than 2,800 units of centurion in surgical, which represents 15% penetration globally and 25% in the United States.


The pharmaceutical segment posted growth on account of the following two factors:

  • Growth products delivered growth of 25%.
  • Emerging markets experienced strong growth of more than 13%.

Growth products such as Jakavi, Xolair, Gilenya, Afinitor, and Tasigna grew more than 25% at constant currency. They contributed ~41% to pharmaceutical sales in 1Q15 compared to 33% in 1Q14. The growth was partially offset by the generic impact of Diovan and Exforge.

As an alternative to investing directly in Novartis, you might consider pharmaceutical funds such as the iShares U.S. Healthcare ETF (IYH) and the Health Care Select Sector SPDR ETF (XLV). XLV has holdings in Pfizer (PFE), Merck (MRK), and Johnson & Johnson (JNJ).


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