Novartis zeroes in on costs as blockbusters-to-be Cosentyx, Entresto rev up

Novartis ($NVS) has had a complicated year: Three months ago, the Swiss drugmaker closed its multipart asset swap with GlaxoSmithKline ($GSK), sending most of its troubled vaccines business to GSK and taking on the U.K. drugmaker's oncology business. Its consumer health business moved under GSK's control in a joint venture. And that was all after handing its animal health business to Eli Lilly & Co. ($LLY) in a $5.4 billion deal.

Through it all, Novartis' financial goal has remained simple: Increase margins. And in anticipation of an investor gathering Thursday, the company promised it's on track with its plan to boost profits even faster than sales in 2015.

The big asset sale-and-swap was designed to that end, and in April, analysts were already remarking on the 30.6% core margin under the new structure, compared with 26.1% at the "old Novartis." That makes sense, given the struggles Novartis was having in vaccines and the lower margins in consumer health.

Now, as the company fits GSK's oncology operations into its own; combined salesforces are up and running in 22 countries, Novartis said in a statement that it's eyeing other cost cuts, including streamlining manufacturing at its generics unit Sandoz and continuing to shift back-office operations to its efficiency-minded business services unit. The latter delivered procurement savings of about $350 million during the first quarter, the company said.

The cost squeeze is helping to soften the blow from Diovan generics, which have taken a bite out of Novartis' top line, as the company's new products start to build sales.

Though replacing Diovan's billions is a ways off, the new meds are definitely expected to do that; the psoriasis drug Cosentyx, for instance, could hit $5 billion alone, Novartis said in its Thursday statement, with new indications in ankylosing spondylitis and psoriatic arthritis already pending at the FDA and E.U. But those new uses won't be fully approved till the second half of next year, and as with any launch, sales in psoriasis are just beginning to build.

The heart failure drug Entresto--a.k.a. LCZ696--is expected to be a huge seller once it wins an FDA approval, expected soon, though not soon enough to make a huge difference in 2015 sales.

Meanwhile, the company won the first biosimilar approval in the U.S. in Zarxio, a knockoff of Amgen's ($AMGN) infection-fighting therapy for cancer patients, Neupogen--but it can't yet launch, because it's tied up in a legal wrangle. Sandoz also nabbed the first FDA approval for a substitutable generic version of Teva's ($TEVA) original Copaxone formula, which could be a big seller in itself, despite Teva's ongoing (and successful) efforts to convert multiple sclerosis patients to its new, longer-acting version of the drug.

Novartis CEO Joe Jimenez

CEO Joe Jimenez has said that saving money via business-services streamlining and other cost cuts will allow the company to continue putting billions behind R&D and product launches, including Entresto, which Novartis sees as its biggest launch ever. Adding new indications to Cosentyx's label and expanding the reach of GSK's oncology meds--not to mention Novartis' moves in immuno-oncology--won't be cheap, either.

"With the portfolio transformation behind us, management is focused on execution against our strategic priorities, including strengthening innovation across our three businesses," CEO Joe Jimenez said in the statement, highlighting Entresto, Cosentyx, and its newly acquired GSK oncology meds, plus Sandoz's biosimilars pipeline. "With strong innovation in each of our businesses, we are well positioned for the future."

- read the Novartis release

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