Novartis
Boost in Investment Takes Toll on Outlook
Novartis AG cut its full-year profit outlook as it ramps up
investment in its new heart-failure treatment to offset declining
sales of blockbuster cancer drug Gleevec.
Chief Executive Joe Jimenez said he had made a "hard decision"
to boost investment in heart drug Entresto by an additional $200
million this year, a move that could cost the company 1% to 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 additional investment would mostly go into
building a sales force targeting primary-care physicians, which
"will need more education about Entresto."
Novartis is also counting on Cosentyx, its new drug for
psoriasis and certain rheumatic diseases, to play a key role in
driving growth.
The Swiss drugmaker now expects core operating income to fall by
a low-single-digit percentage, after previously estimating it would
be broadly in line with 2015. The company continues to see revenue
broadly in line with last year.
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 has picked up. More insurers have agreed to cover the
drug, and cardiology associations in the U.S. and European Union
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.
Novartis reported second-quarter net income of $1.81 billion,
down 3% from $1.86 billion a year earlier. Core net income -- a
measure that strips out one-time gains or losses -- fell 5% to
$2.93 billion, and revenue dipped 2% to $12.47 billion; both topped
analyst expectations.
Stripping out the negative effect of the strong U.S. dollar, the
company said net income and sales were flat, and core net income
was down 2%.
Novartis is dealing with shrinking sales of its best-selling
cancer treatment Gleevec, which has faced competition from a
cheaper generic version 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's new drugs.
Cosentyx generated $260 million in the second quarter, which Mr.
Jimenez said was significantly ahead of expectations. Another
bright spot was Gilenya, for multiple sclerosis, in which revenue
increased 17% at constant currencies to $811 million.
The company is also investing heavily in turning around its
eye-care unit Alcon. Sales at Alcon were $1.5 billion, down 1% at
constant currencies, because of 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.
--Denise Roland
Rio Tinto
Iron Ore Shipments Start to Recover
SYDNEY -- Rio Tinto PLC shipped more iron ore to steelmakers
around the world last quarter, recovering from a weak start to the
year when a tropical cyclone hindered its vast mining operations in
northwest Australia.
The Anglo-Australian minerals producer on Tuesday reported
iron-ore shipments of 82.2 million metric tons from its Australian
mines in the three months through June, up 7% on the prior quarter
immediately prior and 6% higher than the same period a year
earlier.
One of the world's biggest exporters of the key steel
ingredient, Rio Tinto has in recent years ratcheted up production
from a vast network of mines in a remote part of Australia, betting
on strong demand from expanding Asian economies such as China. The
company said it expects to ship roughly 330 million tons of iron
ore from those Australian mines in 2016.
Rio Tinto reiterated expectations that output will remain at
similar levels next year -- between 330 million and 340 million
tons -- because of delays to an autonomous railway project.
Earlier this year, the company downgraded its expectations for
Australian iron ore output in 2017 from 350 million tons, citing
delays to the railway system designed to increase the capacity and
efficiency of its train network.
Rio Tinto also has an iron-ore operation in Canada, where its
share of output increased 6% on-quarter -- although dipped 2%
on-year -- to 2.6 million tons.
Prices for the commodity have steadied around US$50 a ton after
tumbling from as high as US$190 a ton in early 2011, weighed by
rising mine supplies. Other major global miners such as BHP
Billiton Ltd. (BHP.AU) and Brazil's Vale SA (VALE) have also
expanded their operations.
Rio Tinto Chief Executive Jean-Sébastien Jacques, who succeeded
Sam Walsh earlier this month, said the miner remains focused on
maximizing cash from its operations. "This will ensure that Rio
Tinto is well-positioned to generate compelling and consistent
returns for our shareholders," he said in a statement.
The miner said production of other commodities including copper
and coal, two other important commodities for company earnings,
were mixed.
Production of hard coking coal was down 9% on-quarter, at 1.8
million tons, while aluminum output was 3% higher at 911,000
tons.
Quarterly copper output was flat, at 141,000 tons, with higher
production at some mines weighed by weaker output from the huge
Escondida mine in Chile, which is managed by BHP and in which Rio
Tinto holds a 30% stake.
--Rhiannon Hoyle
Philip Morris
Profit Declines, but Currency Woes Abate
Philip Morris International Inc.'s profit declined more than
Wall Street anticipated as shipment volume slipped in each of its
geographic divisions, including in Europe.
Shares fell 2.3% to $100.65 a share in premarket trading. The
stock had risen 17% so far this year through Monday's close.
The cigarette maker said currency headwinds were abating and it
raised its 2016 earnings forecast to a range of $4.45 to $4.55 a
share on a reported basis, up from prior guidance of $4.40 to $4.50
a share. Excluding unfavorable currency impact, the company expects
adjusted per-share earnings growing 10% to 12% from the prior year.
The company still expects most growth to come in the second half of
the year, particularly in the fourth quarter.
Philip Morris, which sells the leading Marlboro brand and others
internationally, had seen its cigarette volumes grow amid an
improving European economy.
However, in May the European Union's highest court rejected a
challenge by Philip Morris and other tobacco companies against a
tough new antismoking law. The 2014 tobacco directive bans menthol
cigarettes, mandates bigger warning labels on cigarette packaging
and, for the first time, sets limits on electronic cigarettes --
including on how much nicotine they can contain. A legal challenge
against plain packaging in the U.K. also failed in May.
Shipments of Marlboro, easily its largest brand by volume,
declined 3.1% while shipments of L&M, its second largest brand,
edged up 0.3%.
André Calantzopoulos, Philip Morris's chief executive, said
cigarette shipment volume was hurt by "declines in low-margin
geographies."
For the period ended June 30, cigarette volume fell 4.8% to
209.3 billion units, as shipments declined across all its
geographic segments. Shipment volume declined by 5.9% in Latin
America and Canada, slid 7.9% in Asia, and fell 4% in the Eastern
Europe, Middle East and Africa unit. Volume edged down 0.8% in the
European Union, where the company gets about one-third of its
revenue.
The company's stock has risen this year along with other tobacco
giants Altria Group Inc. and Reynolds American Inc., as investors
have sprung for high dividend yields. Philip Morris yields about
4%. But Philip Morris investors are paying a higher premium for a
company facing tougher regulations overseas and constant currency
risk compared with its domestically-focused peers.
Over all, Philip Morris reported a profit of $1.79 billion, or
$1.15 a share, down from $1.89 billion, or $1.21 a share, a year
earlier. Analysts had forecast $1.20, according to a Thomson
Reuters poll. Revenue excluding excise taxes fell 3.1% to $6.65
billion, below the $6.77 billion in revenue analysts had
forecast.
--Joshua Jamerson
(END) Dow Jones Newswires
July 20, 2016 02:50 ET (06:50 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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