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Analyst gauges financial loss from Novartis recall

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Analyst gauges financial loss from Novartis recall


Manufacturing problems at a Novartis factory that triggered the recall of four popular medicines could cost the company between $560 million and $750 million in lost sales and productivity, a Wall Street analyst estimated Tuesday.

On Sunday the Swiss drugmaker announced the recall of 1,645 lots of Excedrin, NoDoz, Gas-X and Bufferin from the U.S. market due to reports of chipped and broken tablets and inconsistent bottle packaging that could cause medicines to be mixed up. The company previously closed the Lincoln, Neb., facility where the products were manufactured and says it does not know when operations will resume. Novartis expects to take a $120 million charge for the fourth quarter of 2011 related to the recalls.

Leerink Swann analyst Seamus Fernandez cut his 2012 sales forecast and full-year earnings estimate for the company by $560 million and 20 cents per share, respectively. According to an investment note from Fernandez, the figure reflects the loss of a year's worth of sales of the recalled products, roughly $390 million, plus $170 million in lost production from an expected three-month shutdown of the facility.

The Food and Drug Administration is currently investigating manufacturing and quality-control problems at the plant and is expected to be involved in approving the restart of operations.

"History suggests that few manufacturing challenges resolve quickly, but a partial resumption of manufacturing is certainly possible, although a resumption of manufacturing and a full recovery in the recalled brands are likely to take considerably longer to resolve, particularly given the FDA's involvement," Fernandez states.

In a worst-case scenario, Fernandez expects Novartis would lose $750 million in income if all products manufactured at the Lincoln plant are suspended for one year. That would be a 30 to 35 cent cut in earnings per share.

Analysts surveyed by FactSet expect Novartis to earn $5.55 per share this year.

In afternoon trading, U.S.-listed shares of Novartis fell 5 cents to $56.95.


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