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1Q17 Earnings for Novartis’s Sandoz, Its Generics Business

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Sandoz, the generics business

Sandoz, the generics arm of Novartis (NVS), is the number-two generic medicines provider in the world. It’s the number-one provider of differentiated generics that are difficult to develop and manufacture. For 1Q17, Sandoz contributed ~21.0% to total revenues, at $2.4 billion.

Sandoz reported a rise of 1.0% in revenues for 1Q17 at constant exchange rates. Operational growth was driven by a 9.0% rise in volumes, substantially offset by an 8.0% fall due to price erosion.

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Performance of Sandoz products

The revenue drivers for Sandoz are biopharmaceuticals, including biosimilars and Glatopa. The growth was reported across all regions worldwide.

For the US markets, reported revenues were nearly flat at $861.0 million for 1Q17 compared to 1Q16.

European markets reported a 2.0% rise in revenues at constant exchange rates to $1.1 billion, driven by strong sales in the region.

The Asia, Africa, and Australasia markets reported a fall of 5.0% at constant exchange rates in 1Q17 due to a slowdown in China and lower revenues from contract manufacturing. However, increased sales from Japan and Australia partly offset the fall in revenues for this region.

For emerging growth markets, revenues fell 1.0% at constant exchange rates in 1Q17.

Biopharmaceuticals

Global sales of biopharmaceuticals rose 30.0% at constant exchange rates to $274.0 million, driven by the strong performance of Glatopa and Zarxio in the US markets. Revenues for biopharmaceuticals include revenues from biosimilars, biopharmaceutical contract manufacturing, and Glatopa. Glatopa (glatiramer acetate) injection is the first generic version of Teva Pharmaceutical’s (TEVA) Copaxone 20 mg (milligram) used for the treatment of relapsing forms of multiple sclerosis.

Overall, retail generic sales fell 2.0% to $2.0 billion during 1Q17, including a 7.0% fall in US revenues, partially offset by a rise of 1.0% in international sales.

Anti-infective franchise

The anti-infective franchise reported flat revenues at $348.0 million in 1Q17. Sandoz discontinued low-margin products, which led to an overall fall in revenues for the franchise.

To divest the risk, investors can consider ETFs such as the iShares Europe (IEV), which holds 2.7% of its total assets in Novartis. IEV also holds 1.4% in GlaxoSmithKline (GSK), 1.0% in AstraZeneca (AZN), and 1.2% in Sanofi (SNY).

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