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Why Did Novartis’s Pharmaceutical Revenues Fall in 2015?

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Updated June 22, 2016.

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Revenues and costs

Novartis (NVS) is one of the largest providers of innovative medicines in the world. Nearly 61% of the company’s total revenues came from its pharmaceuticals division in 2015.

Revenues

Revenues for the pharmaceuticals division have fallen from $31.8 billion in 2014 to $30.4 billion in 2015. The sales figures fell due to currency impacts. In terms of constant currency, the pharmaceuticals division sales grew by 6%. There was a volume growth of 13% during 2015, partially due to the oncology portfolio acquired from GlaxoSmithKline (GSK). Around 34% of revenues came from the US, 33% came from Europe, and 24% came from Asia, Africa, and Australasia. The remaining 9% came from Canada and Latin America.

Costs

The costs for the pharmaceutical division are compared in the chart above. Overall, the gross profit margin has been around 83.2% for 2015.

  • The cost of sales as a percentage of revenues fell in 2015 as compared to 2014 due to a change in the product mix.
  • The R&D expenses were nearly flat in 2015. The company is working on improving the product mix. The research and exploratory development expenses increased by 0.1% in 2015, but the confirmatory development expenses remained unchanged in 2015.
  • The M&S expenses fell in 2015 due to changes to the structure of the company as well as the divestiture of the animal health and vaccines business.
  • The general and administration expenses have remained nearly constant over the last three years.

There was a favorable change in the other incomes for this segment for 2015, which was mainly due to retained vaccines intellectual property rights, commercial settlement gains, and the sale of Novartis Venture Fund Investment.

Investors can consider ETFs like VanEck Vectors Pharmaceutical ETF (PPH), which holds 5.5% of its total assets in Novartis (NVS), 5.9% in Pfizer (PFE), 5.4% in Merck (MRK), and 5.6% in AbbVie (ABBV) in order to divest risk.

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