Novartis looks past dim Q2 results to new Glatopa, Entresto launches

Currency hits and a lagging devices business forced down a Big Pharma's second-quarter sales and profits. No, we're not talking about Johnson & Johnson ($JNJ), though the same was true of the U.S.-based health giant. This time, it's Novartis ($NVS), whose Alcon eye unit proved a drag on strong pharma and generics performance.

The Swiss drugmaker's Q2 sales slipped to $12.7 billion, down 5%. Same with earnings, with a per-share result of $0.77, down 31%. Without the currency drag, Novartis sales would have grown by 6%, the drugmaker says, with earnings down 16%.

It's something of a transitional quarter for Novartis, which wrapped up its big asset sale-and-swap with GlaxoSmithKline ($GSK) in April, taking on the British giant's oncology meds in exchange for most of its vaccines business. The deal sank vaccine sales, naturally, but the GSK cancer drugs added $500 million to pharma's top line. As the year goes on, Novartis will have the chance to show it can make more of those products, particularly the melanoma duo Tafinlar and Mekinist.

Plus, Novartis racked up a couple of key approvals in recent weeks. That shifts the focus away from any shortfalls for last quarter. Sandoz rolled out its version of Teva Pharmaceutical Industries' ($TEVA) blockbuster MS med Glatopa, and early uptake looks quite impressive, analysts say. And then there's the Big Kahuna--the heart failure drug Entresto, a.k.a. LCZ696, which won FDA approval less than two weeks ago. It's expected to be Novartis' biggest-ever launch, with sales estimates of $3 billion-plus from the company, and up into the double digits from some optimistic analysts.

Novartis pharma chief David Epstein

Pharma did its part to buoy Q2 sales, with 6% growth in constant currencies. Standout products were the multiple sclerosis treatment Gilenya, which leapt up by 26% to $700 million as patients continued to choose oral meds over injectables. The blood cancer drug Tasigna pitched in with 21% growth, while fellow cancer treatment Afinitor delivered $423 million, up 19%. Sales volume grew by 13 percentage points, the company noted, with higher prices pitching in just 1 percentage point.

The generics business Sandoz was the top performer, with double-digit growth all around, factoring out currency effects--and that's despite a fair bit of downward pressure on pricing. The unit's sales came in at $4.5 billion, up 10% in constant currencies. The Sandoz bottom line wasn't so fortunate; its moves to shut down production facilities cost $180 million in charges.

It was Alcon that suffered most for the quarter, thanks to lower sales of surgical equipment and implantable lenses, the latter because of stepped-up competition. Contact lens care sales, which had been dropping already, fell even faster for the quarter. Plus, the division spent more money during the period, particularly on R&D. Naturally, margins fell, too.

Novartis pointed out some ongoing cost-saving efforts to remind investors that it's hard at work on margins--which did improve slightly for Q2. It's making progress in shifting back-office operations to the new business services group, and its procurement-efficiency drive delivered $400 million in savings for the quarter. Plus, it tagged two Sandoz manufacturing facilities for shutdown, and one pharma site will be restructured.

When it comes to the yearly forecast, Sandoz was the top performer again. Novartis hiked its forecast for that division, to sales growth in the high single digits, partly on expectations for Glatopa. Pharma's mid-single-digit growth target stands. The company lowered its expectations for Alcon, on the other hand; it's now expected to grow in the low-single-digit range.

- see the release from Novartis

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