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Novartis AG – Risk Profile

Industry: Healthcare
Current: Company Performance

About the Company

Novartis is a healthcare company that focuses on the discovery, development, manufacture and marketing of prescription and generic pharmaceutical products and eye care products. It provides drugs for the treatment of cancer, cardiovascular diseases, dermatological conditions, neurological disorders, ophthalmic and respiratory diseases, immune disorders, and infections, among others. The company offers generic medicines and biosimilars through Sandoz. Novartis also conducts research in various disease areas through The Novartis Institutes for BioMedical Research (NIBR).

Novartis is one of the leaders in the diversified drug industry with a market cap of $205.21 billion. It reported revenue of $52.87 billion in financial year 2021 (FY2021) which increased 5.97% over that in FY2020. The company’s net income also increased 197.58% in FY2021 over that in FY2020.

Risk Pillars

Our proprietary risk assessment uses a combination of four risk pillars – Country, Industry, Operational, and Financial. Scores are based on a scale of 1 to 5, 1 being the lowest risk and 5 being the highest.

For Novartis, country and operational risk pillar fare better than the other risk pillars. F. Hoffmann-La Roche Ltd, Johnson & Johnson, and Astellas Pharma Inc are the leaders in the sector.

Country Risk: Novartis has geographical presence in various countries, which insulates it from the risk of operating in a single economy. The majority of the revenue of the company is derived from the US (33.88%), followed by Germany (9.29%), Japan (5.76%), China (5.29%), and Other Countries (39.13%). The company has a country risk score of 4.90.

Industry Risk: The company’s primary exposure is to the diversified drug sector, from which it generates 100% of its revenue. An industry score of 3.50 indicates high profit margins but weak growth projections for the diversified drug in comparison to other sectors. Lower cyclicity also boosted the industry risk score.

Operational Risk: Our operational risk score is based on four pillars – business positioning, scale, operational efficiency, and profitability. The operational score of Novartis is strengthened by business positioning, profitability, and scale of operations. The company’s competitive positioning boosted the business positioning score. A low inventory turnover ratio in comparison to that of its peers effected the operational efficiency pillar. High EBIT margins increased profitability.

Financial Risk: Novartis AG’s leverage and liquidity ratios affected the overall financial score. Low current ratio affected the liquidity ratio pillar. High debt to equity ratio in comparison to that of its peers impacted the leverage ratio.

About our Methodology

GlobalData risk scorecard for a sector provides the analysis of various risks a company is vulnerable to. Our risk framework comprises four pillars – country, industry, operational and financial. The country risk for an entity signifies the risk of operating in a particular country. GlobalData's proprietary country risk assessment framework is used to calculate the risk for individual countries. Industry risk is an integral part of risk analysis, and it implies the riskiness and stability of the industries in which a company operates. The operational and financial risk profile comprises a company's risk and returns potential based on its critical operational and financial metrics. Our scores are based on an average of the latest three fiscal year data.

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