Novartis sales flag on Diovan generics, but CEO promises cost cuts will fuel profits

Novartis CEO Joe Jimenez

Take a look at Novartis' ($NVS) second-quarter results for reasons why it engineered that big asset swap-and-sale with GlaxoSmithKline ($GSK) and Eli Lilly ($LLY). The two units Novartis is unloading, vaccines and animal health, delivered weak sales for the quarter, dragging the company's top line below expectations.

The Swiss drugmaker's pharma group didn't exactly shine either, though. Branded drug sales barely ticked upward, as Diovan generics losses were offset by growth from the multiple sclerosis drug Gilenya, the leukemia treatment Tasigna, and the cancer therapy Afinitor.

It was Sandoz, the generics division, that delivered the biggest boost, growth-wise, with a 5% year-over-year increase. Overall, Q2 revenue grew by 2% to $14.64 billion, a tad lower than the average analyst forecast, the Financial Times notes.

Don't expect much better for the rest of the year, either; the company confirmed its forecast of low- to mid-single digit sales growth, despite the newer products it expects to keep adding heft to the top line. That's because Novartis is finally facing full-on generic competition for its blockbuster blood-pressure drug Diovan.

The company's losses on that product, which lost patent protection last year, had been tempered by Ranbaxy Laboratories' failure to get its version of the drug onto the market. While generic versions of a Diovan combo pill, Diovan HCT, did hit the franchise's sales, the Ranbaxy delay meant a longer monopoly for the single-drug version.

CEO Joe Jimenez promises that profits will keep coming, if slowly. The company's "core" profits of $3.8 billion fell short of expectations this quarter, but Jimenez says he'll keep chipping away at costs to boost margins. As Novartis preps for the big overhaul to come--when its deals with GSK and Lilly both close--the company is consolidating its business service functions to save money.

Those savings won't come overnight, though, Jimenez warns. "You shouldn't look for a 'Big Bang' of Novartis Business Services; for example, us coming out and saying we're resetting our cost base," he said (as quoted by Reuters). "This is going to be a process over time that allows us to continually lower our costs and continually drive margin growth."

- read the Novartis release
- get more from the FT (reg. req.)
- check out the Reuters news

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