Pharmaceuticals

Novartis earnings below estimates, share price falls on the stock market

Net profit 2023 at $14.9 billion but net profit for the quarter although up 6% missed market expectations

31 January 2024

Vas Narasimhan, CEO Novartis, al World Economic Forum (WEF) in Davos, EPA/GIAN EHRENZELLER

3' min read

Key points

2023 revenues and fourth quarter
Research and drugs coming soon
Falling shares
The impact of exchange rates

3' min read

Swiss pharmaceutical group Novartis more than doubled its net profit to $14.9 billion (€13.7 billion) in 2023, buoyed by $5.9 billion from the Sandoz demerger. But the fourth quarter figure fell short of market estimates and the stock closed down 3% on the Zurich Stock Exchange.

2023 revenues and the fourth quarter

The turnover of the business it retained is $45.4 billion, up 8% from the financial year 2022. Novartis spun off Sandoz, its generics and biosimilars subsidiary, in October and listed it on the stock exchange. This division allowed it to complete its refocus on new medicines, concentrating on four main therapeutic areas: immunology, neuroscience, oncology, as well as cardiovascular, renal and metabolic diseases. 'Novartis has completed its strategic transformation to become a company entirely focused on innovative medicines,' said its CEO, Vas Narasimhan. This was accompanied by a 6% increase in adjusted net profit for the fourth quarter, helped by cost cuts and strong growth in recently launched drugs.

Net profit jumped 42% to USD 8.57 billion (EUR 7.93 billion) and operating profit grew 23% to USD 9.76 billion (EUR 9.03 billion). Operating cash flow increased from USD 12.12 billion to USD 13.16 billion (EUR 11.21 billion to EUR 12.17 billion). At the press conference, CEO Vas Narasimhan explained that the group 'has succeeded in completing its strategic transformation into a fully innovative pharmaceutical company and continues its relentless process of creating sustainable value for shareholders. Our sustained operating performance," the CEO concluded, "continues with strong double-digit growth across all indicators for both Q4 and the full year.
Novartis also extended its medium-term guidance, stating that it expects sales to grow 5% per annum until 2028, when it will adjust for currency fluctuations. It had previously forecast that pace of growth until 2027.

CEO Vas Narasimhan had previously led a push to cut jobs and focus on fewer therapeutic areas and geographic markets, before spinning off and listing generic drug company Sandoz at the end of last year.

Research and upcoming drugs

By 2023, the group had achieved 'ten positive results from phase III studies' on drugs with 'significant sales potential', the Novartis chief emphasised, confirming medium-term targets. The target is 5% sales growth at constant exchange rates for 2027. For 2024, the group expects single-digit revenue growth of around 5 per cent and plans to increase the dividend by 3.1 per cent to CHF 3.30 per share for the financial year 2023.This is the 27th consecutive increase. Shareholders will vote on the board of directors' proposal at the annual general meeting on 5 March 2024.

Falling shares

The main reason for the plunge in Novartis AG's stock after the pharmaceutical company reported earnings below analysts' estimates was weak revenues from Pluvicto, a cancer treatment that faced supply constraints.
Earnings per share last quarter fell short of analysts' average estimate of $1.66. Pluvicto's sales were $273 million, below the analysts' estimate of $317 million. The stock fell as much as 5.1 percent, the steepest intraday drop in nearly two years.
Novartis is emerging from a reorganisation led by chief executive Vas Narasimhan, who cut jobs and spun off units to focus the company more narrowly on specific diseases with high growth potential.
Pluvicto's growth is expected to improve this year after the company increased drug manufacturing capacity, Narasimhan said. Operating profit core and sales are expected to rise this year.

The impact of foreign exchange

If exchange rates at the end of January prevail for the rest of 2024, the impact of exchange rates on the year would be negative one percentage point on net sales and negative three percentage points on core operating profit. This was stated by Novartis CFO Harry Kirsch during the financial results presentation.

Geographically, Novartis will continue to focus on growth in the priority areas of the US, China, Germany and Japan. While in terms of therapeutic areas, Novartis will focus primarily on cardiovascular, renal and metabolic diseases, as well as immunology, neuroscience and oncology, with significant market activities in each of these areas, which have 'substantial growth potential'. In addition to the two established technology platforms (chemistry and biotherapeutics), investments in new R&D and scale-up capabilities will focus primarily on three emerging platforms: gene and cell therapy, radioligand and xRNA therapy.

For 2024, Novartis sees revenues growing in the mid-single digits and core operating income increasing in the high single digits, specifying that the new guidance assumes "there will be no generic Entresto-based drug launches in the US" during the year.
In the medium term, revenues are expected to grow by 5% at constant exchange rates globally in the period 2023-2028.