NVS Novartis AG

By Denise Roland 

Novartis AG said earnings fell in the first quarter of the year, as the company plowed investment into new drug launches to offset a sharp dip in sales of the company's blockbuster cancer medicine Gleevec, after a cheaper version of the drug launched in February.

Basel, Switzerland-based Novartis said net income for the three months ended March 31 was $2 billion, a fraction of the $13 billion reported a year earlier, when profit was boosted by a $12.8 billion gain from the sale of businesses to GlaxoSmithKline PLC and Eli Lilly and Co.

The drugs company confirmed its outlook for 2016 growth, saying it still expected revenue and core operating income to be broadly in line with 2015.

Revenue slipped 3% to $11.6 billion from $11.9 billion a year earlier, missing analyst expectations of $11.89 billion. Core net income, which strips out one-time impairments or gains, fell 13% to $2.8 billion. That beat the $2.68 billion expected by analysts. Stripping out the effect of the strong dollar, sales were up 1% and core net income fell 6%.

Novartis is leaning heavily on new drugs to offset declining revenue from Gleevec, which fell 22% to $834 million, now that a cheaper generic version of the medicine is available. That decline was less sharp than feared: prescription drugs can lose as much as 80% of sales in the weeks after the launch of a generic version. Chief Executive Joe Jimenez said "smart contracting" had helped Novartis retain around 50% of Gleevec prescriptions.

The company said it increased spending on marketing by 1.1 percentage point to 23.6% of sales to promote its newer drugs. It said revenue from those so-called growth products increased 24% in the quarter to $3.9 billion.

Still, sales of one of Novartis's most important drug launches, Entresto for heart failure, were still "modest" in the first quarter, at $17 million. The drug has so far proved a disappointment, as a result of doctors' hesitation to switch stable patients onto a new medicine and delays in securing reimbursement from cost-conscious health insurers in the U.S. But the company said it expected the drug to generate $200 million in revenue this year, now that it has broader insurance coverage in the U.S. and the company has deployed a larger sales force.

Mr. Jimenez said Novartis had increased its U.S. sales force for Entresto by 50% to make more frequent visits to cardiologists, a strategy he said had already "unlocked that resistance to prescribe."

Another key drug, Cosentyx for psoriasis, has had a stronger start. Revenue from that drug was $176 million. Novartis said growth accelerated in the first quarter due to additional approvals in rheumatic conditions. Mr. Jimenez said he expected that drug, as well as Tafinlar and Mekinist, two drugs for advanced melanoma, to play an important role in offsetting sales lost from Gleevec this year.

Novartis's earnings also took a hit from increased investment in its ailing eyecare unit Alcon, which is in the early stages of a turnaround announced earlier this year. The company said its growth plan for Alcon, which sells items such as contact lenses and lens implants, was on track. Revenue from the unit fell 3% to $1.4 billion at constant currencies, due to competition for its contact lenses and a slowdown in sales of cataract equipment. Mr. Jimenez said he expected Alcon to have a slow first half but to "turn" in the next six months of the year.

Sandoz, the company's generic drug unit, notched revenue of $2.4 billion in the first quarter, up 4% at constant currencies, as volume growth of 11 percentage points more than offset 7 percentage points of price erosion.

Novartis's shares were flat at 74 Swiss francs in afternoon trade.

Write to Denise Roland at Denise.Roland@wsj.com

(END) Dow Jones Newswires

April 21, 2016 08:14 ET (12:14 GMT)

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