00:00The Swiss drugs maker Novartis has raised its profit outlook for the year, crediting its success with a new breast cancer treatment for better than expected results.
00:10Operating income was up a fifth to just under $6 billion in the three months to the end of June. Sales climbed 12% to $14 billion.
00:20Novartis is also repatriating production of medicines sold in the US back to American facilities.
00:26Well, these strong results come against the background of a challenging time for the pharmaceutical industry.
00:32President Trump is threatening 200% tariffs on drugs imports from August.
00:37Let's talk to Fiona Sincosa, market analyst at Citi Index.
00:41Fiona, welcome back. Good to see you.
00:42So we've mentioned the breast cancer drugs, obviously significant.
00:46But what are the other key drivers behind this strong performance by Novartis?
00:51Yes, I mean, they saw really strong total sales, as you mentioned, up 12% to $14 billion.
01:00And, I mean, that's strong growth that they saw across their priority brands.
01:05But as well as strong revenue, we've also seen disciplined cost management and also favorable FX dynamics.
01:14And that's all gone towards helping increase profitability, as you noted, quite substantially.
01:20So the big question is, what are the implications of Mr. Trump's new tariffs on companies like Novartis?
01:28Yes, so, I mean, you know, expectations are that these could actually have a very big impact.
01:34We could see prices increase significantly.
01:36Now, interestingly, they've actually said that they don't expect there to be a near-term impact
01:42because they say they have adequate inventories in the U.S. for this year.
01:48So a lot actually depends on how quickly and at what level tariffs are implemented
01:55and how quickly they are ramped up, if they are ramped up.
01:58Now, as you also mentioned, they're going to see a sort of repatriation of manufacturing facilities,
02:04spending around Ā£23 billion in order to get sort of manufacturing ramping up again in the U.S.
02:12So, I mean, these are a lot of costs that there are going to be involved.
02:16This is a massive disruption that we're looking at.
02:19But they're saying near-term, they don't expect there to be an impact,
02:22which is why they've managed to increase their outlook for 2025.
02:26But I think looking out into 2026 and beyond, there are definitely headwinds building.
02:31Well, Mr. Trump suggests that companies will have a year or more to adapt to any new tariffs.
02:38Is that going to be realistic?
02:41No, I don't think so.
02:43I mean, a year in terms of sort of these huge businesses is not that long.
02:48These business have their supply chains that they've had set up.
02:51Now, obviously, they are making adjustments and preparing themselves for such changes.
02:56But there is a lot of uncertainty still.
02:58You know, we've been waiting to hear will they, won't they, when will this start, what will be the prices.
03:03So, I mean, there's a lot of uncertainty that's very difficult for these companies to price in and be able to plan for.
03:10But a year in terms of being able to relocate a whole lot of manufacturing to the U.S.
03:17is not that much time.
03:18And if it does need to be done quickly, it's obviously going to cost much more.
03:23I'm sure all these companies have already war-gamed and scoped this.
03:27But let's say U.S. tariffs do move ahead.
03:30How might that reshape global pharmaceutical supply chains, especially when you think of the Swiss and those EU-based companies?
03:40Yeah, so I think what we're going to see is this relocation of manufacturing.
03:45I mean, in order for these companies to be able to sell in the U.S. at profit, they are going to need to be able to have manufacturing in the U.S.
03:55And so that's what we've been hearing about is sort of, you know, this investment into manufacturing in the U.S.,
04:01which is what President Trump is actually looking for when he says he's looking to build the manufacturing base of the U.S.
04:08So I think that's going to happen.
04:09And then we're just going to see a sort of rerouting, if you like, of those drugs.
04:13They're going to need to be manufactured in the locality in order to be sold in the U.S.
04:19Fiona, good to see you.
04:20Thanks for coming on the programme again.
04:21Fiona Sincotta, the market analyst at Citi Index.
