Novartis Q2 shines on new meds, cost cuts

Novartis ($NVS) kicked off Big Pharma's earnings release with a nice surge in profits. Sales grew by 27% to $14.9 billion, including an 8% increase at the pharma unit. Profits rose by 12%. The strong performance illustrates two things about Novartis: It's been able to bring to market new drugs like the multiple sclerosis pill Gilenya and its diversification strategy is paying off.

And these are key affirmations for a company that, like its major rivals, will be facing big generic competition over the next few years. The cancer drug Femara and blood-pressure blockbuster Diovan are falling off patent, threatening to leave a multibillion-dollar hole in pharma revenues; already, Femara sales have dropped by 29% versus the same period last year, while Diovan revenues inched downward by 3% (they still came in at $1.5 billion for the period).

But here comes Gilenya, which brought in $79 million for the quarter. And Tasigna, the intended successor to Gleevec, which saw sales grow by 79%. CEO Joe Jimenez (photo) credited new meds with helping Novartis maintain its financial targets. He also pointed to "our diversified healthcare portfolio," which helped boost this quarter's numbers. Newly purchased Alcon, the eyecare company, added to the figures, but so did strong sales at Sandoz, the company's generic drugs division.

There's another thing that this quarter's results illuminate: cost-cutting. Margin growth depended in part on restructuring efforts at the company, and in integrating Alcon, Novartis found another $300 million in savings, Jimenez said.

The CEO's hawk eye has now lit on spending in Switzerland, its home base, where the strong Swiss franc is driving up costs. During the earnings call, Jimenez said he's looking to save, partly from improved procurement, partly by growing plant utilization to 80%. The company has already pulled out of several plants, Dow Jones reports, and it is leaving more sites. Jimenez wouldn't speculate about job cuts, saying the Swiss streamlining is "very, very long term."

- check out the Novartis release
- see the Bloomberg story
- get more from Dow Jones
- read the Wall Street Journal article
- check out the Reuters news