Novartis (NVS) Misses Q4 EPS by 4c; Announces FY16 Strategy, Management Changes

Novartis (NYSE: NVS) reported Q4 EPS of $1.14, $0.04 worse than the analyst estimate of $1.18. Revenue for the quarter came in at $12.52 billion versus the consensus estimate of $12.64 billion.

TAKING OUR STRATEGY FORWARD IN 2016

2015 was a transformational year for Novartis. We focused our company on three leading divisions with innovation power and global scale, divested sub-scale divisions and operationalized Novartis Business Services to manage our resources more effectively. We also achieved major innovation milestones, with the approval and launch of Entresto and Cosentyx, and the first US biosimilar approved under the new BPCIA pathway.

Today we are announcing further steps to build on our strategy:

Focusing our divisions, integrating businesses that share therapeutic areas to better leverage development and marketing capabilities

We are focusing the Alcon Division on its core Surgical and Vision Care business. Within this business, we have identified key actions to accelerate growth in 2016 and beyond. These include:

• Optimizing IOL innovation and commercial execution
• Prioritizing and investing in promising pipeline opportunities
• Ensuring best-in-class service, training and education for eye care professionals
• Improving sales force effectiveness
• Investing in DTC behind key brands

We are strengthening our ophthalmic medicines business by transferring Alcon's pharmaceutical products (sales of USD 3.8 billion in 2015) to the Pharmaceuticals Division, creating the world leading ophthalmology business with approximately USD 6 billion in sales. This will simplify our ophthalmic medicines business, leverage Alcon's strong brand with Pharmaceuticals development and marketing capabilities, and help us accelerate innovation and growth in eye care.

At the same time, we are shifting selected mature, non-promoted pharmaceutical products (totaling approximately USD 0.9 billion in 2015 sales) into Sandoz, which has proven experience in managing mature products successfully.

Leveraging Group scale to further improve efficiency

We will drive greater efficiency by centralizing our manufacturing operations across divisions within a single technical operations unit. The new unit is expected to optimize capacity planning and lower costs through simplification, standardization and external spend optimization. Centralization is also expected to improve our ability to develop next-generation technologies, implement continuous manufacturing and share best practices across divisions.

Integrating some drug development functions across divisions to create even greater innovation

At Novartis, we remain committed to science and innovation in growing areas of healthcare where we can lead. To increase innovation even further, we are increasing Group-wide coordination of drug development. We are establishing a single Global Head of Drug Development to improve resource allocation, technology and standards across divisions. We are also integrating certain common functions, such as the Chief Medical Office, which will cover medical policy, safety and pharmacovigilance policy for the Group.

Expected savings

These changes are a natural extension of our strategy, and are expected to increase innovation while improving the efficiency of our organization. We expect these changes to generate over USD 1.0 billion in annual cost savings from 2020, with the ramp-up starting in 2016. Associated with these changes we expect one-time restructuring costs of approximately USD 1.4 billion spread over five years. Net savings will be used to fund innovation and improve our profit margins.

Novartis leadership changes

• Mike Ball, Division Head and CEO Alcon
• Mike Ball has been appointed Division Head and CEO Alcon, effective February 1, 2016. Mr. Ball will be a member of the Executive Committee of Novartis (ECN). He joins Novartis from Hospira, where he was CEO from 2011 until recently. Prior to Hospira, he spent five years as President of Allergan, where he held a series of leadership positions over 16 years with the company. Mr. Ball succeeds Jeff George, who has decided to leave Novartis.
• Vas Narasimhan, Global Head Drug Development and Chief Medical Officer
• Dr. Vas Narasimhan has been appointed Global Head Drug Development and Chief Medical Officer, a new position in the ECN. In this position, Dr. Narasimhan will have functional oversight for drug development for General Medicines, Ophthalmology Pharmaceuticals, Oncology and Biosimilars and will create a stronger collaboration across these units.
• Andre Wyss, President Novartis Operations
• Andre Wyss, already a member of the ECN, Head Novartis Business Services (NBS) and Country President for Switzerland, has been appointed President, Novartis Operations. In his new role, he will assume responsibility for the integrated Technical Operations organization as well as for Global Public & Government Affairs, in addition to his current responsibilities.

For earnings history and earnings-related data on Novartis (NVS) click here.

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