Novartis says generics sales will take Q2 hit, but it has a plan for the future

Novartis HQ cropped
Novartis says its Sandoz unit will see Q2 sales fall this quarter as softening prices in the U.S market undercut results.

You know the pricing pressure that burned the revenues of most generics makers in the first quarter? Well, Novartis executives say it is only getting worse, and that its Sandoz unit will succumb this quarter.

Long term, the Swiss drugmaker said biosimilars will be the salve to heal the hurt, but for now the U.S. market will bring the pain. “The impact of US pricing pressure and prior year launch timing is expected to have a higher impact on Q2 2017 sales growth than Q1,” the company said.  

That was one of the messages Novartis shared today during an investors' conference in Boston.

Sandoz managed to eke out a 1% gain in sales in the first quarter while most competitors were seeing significant shrinkage. It might have offset further price erosion this quarter with the launch of 40 mg Glatopa, its generic of the long-acting version of Teva’s blockbuster Copaxone, which Novartis developed with Momenta. The copy was expected to be the first to market, but approval was sidelined in February when the Pfizer plant handling fill/finish was slapped with an FDA warning letter.  

RELATED: Teva catches break as warning letter looks to delay Momenta Copaxone generic

Novartis said that for the year, Sandoz sales should look pretty similar to last year. The unit had about $10 billion in 2016 sales, making up about 21% of Novartis total. 

Over time, Novartis expects to grow revenue of its generics unit with biosimilars, with “five major biosimilar launches” in the U.S. and Europe expected between now and 2020. The drugmaker pointed to its biosimilars of AbbVie's Humira and Johnson & Johnson’s Remicade, which it said the European Medicines Agency (EMA) has accepted for regulatory review.

It already has approval in the U.S. of two biosimilars: Zarxio, a copy of Amgen’s Neupogen, and Erelzi, a biosimilar of Amgen’s anti-TNF blockbuster Enbrel. The benefits of the Erelzi launch, however, will have to wait until it works through a patent-infringement fight it is mired in with Amgen.

RELATED: Look out, Amgen: Novartis wins second FDA biosim approval, this time for Enbrel copy

Additionally it is broadening Sandoz base business with development of complex generics, value-added medicines, branded generics and OTC, Novartis said.

The company also updated investors on its troubled Alcon vision care unit, saying that with more innovation and “improved operations” it should return to long-term growth. The unit grew sales in Q1 for the first time in two years. CEO Joe Jimenez in January explained Novartis  was contemplating the future of  the unit and he would decide by the end of 2017 whether to sell it, trade it away or keep it.

There are estimates that Alcon, which Novartis acquired in 2011 for about $60 billion, could bring in $25 billion to $35 billion today. It is one of several assets that investors believe Jimenez might sell to raise about $50 billion in cash for M&A. The CEO has indicated that he is looking for bolt-on deals up to $5 billion.

While investors are supportive of the idea in general, some expressed concerns to Reuters this week that given Novartis' middling results of late, Jimenez might be tempted to undertake another megamerger, like the Alcon deal, which they point out has been nothing but a drain on the company.