Novartis Warns on Profit as It Boosts Investment in Heart-Failure Pill Entresto -- Update
July 19 2016 - 4:36AM
Dow Jones News
By Denise Roland
Swiss pharmaceutical company Novartis AG cut its profit guidance
for the year as it ramps up investment in its new heart-failure
drug to offset falling sales of cancer blockbuster Gleevec.
Joe Jimenez, chief executive, said he had made a "hard decision"
to boost investment in Entresto by an additional $200 million this
year, a move that could cost the company 1-2% of core operating
income.
"This is absolutely the right thing to do," he said. "There are
two big catalysts for this company over the next two years in terms
of growth. One is Entresto...and I'm not going to let any
constraints minimize the peak sales potential of that brand."
Mr. Jimenez said the extra spend would mostly go into building a
sales force targeting primary-care physicians, who "will need more
education about Entresto."
The company updated guidance to say core operating income could
fall by a low single digit percentage, having previously said it
would be broadly in line with 2015. It held revenue guidance
steady, saying sales would be broadly in line with 2015.
The heart-failure drug, which launched a year ago, got off to a
slow start, reflecting doctors' hesitation to switch stable
patients onto a new medicine and delays in securing reimbursement
from health insurers in the U.S.
But growth is picking up as more insurers have agreed to cover
the drug, and after cardiology associations in the U.S. and EU
updated their prescribing guidelines to recommend Entresto as the
preferred drug in certain patients. Sales of Entresto were $32
million in the second quarter, and Novartis expects the drug to
generate $200 million in revenue for the full year.
Basel, Switzerland-based Novartis said net income was $1.8
billion in the three months to June 30, 3% lower than in the year
earlier period. Core net income, a measure that strips out one-time
gains or losses, fell 5% to $2.9 billion, while revenue dipped 2%
to $12.5 billion, beating analyst expectations of $2.8 billion and
$12.3 billion respectively.
Stripping out the negative effect of the strong dollar, net
income and sales were flat, and core net income was down 2%.
Novartis is under pressure from falling sales of its
best-selling cancer drug Gleevec, which has faced competition from
a cheaper copycat in the U.S. since February when it came off
patent. That dragged sales at the company's innovative medicines
unit down 1% at constant currencies to $8.4 billion, despite a 23%
increase in revenue from Novartis' new drugs.
As well as Entresto, Novartis is counting on Cosentyx, its new
drug for psoriasis and certain rheumatic diseases, to play a key
role in driving growth. That drug generated $260 million in the
second quarter, which Mr. Jimenez said was significantly ahead of
expectations. Another bright spot was Gilenya, for multiple
sclerosis, which increased revenue 17% at constant currencies to
$811 million in the quarter.
The company is also investing heavily in turning around its
eyecare unit Alcon, which is struggling amid intensifying
competition in the contact lens market. Sales at Alcon were $1.5
billion, down 1% at constant currencies, due to lower sales of
contact lenses and surgical equipment.
Sales at its generic drug business Sandoz were up 3% at constant
currencies to $2.6 billion as strong volume growth more than offset
lower prices.
Write to Denise Roland at Denise.Roland@wsj.com
(END) Dow Jones Newswires
July 19, 2016 04:21 ET (08:21 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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