UPDATED: Novartis warns profits may slip as it bets an extra $200M on Entresto

By Tracy Staton Jul 19, 2016 6:40am

The good news: Novartis sales held steady despite a full quarter of generic competition to its blockbuster cancer treatment Gleevec.

More good news: The Swiss drugmaker is optimistic enough about its new meds to plow more money into their marketing and development--an extra $200 million, in Entresto's case.

The not-so-good: That increased investment, focused on Entresto and the outperforming psoriasis treatment Cosentyx, could put operating income on a downward trajectory for the year.

Novartis posted a street-beating $12.47 billion in second-quarter sales, essentially flat year-over-year. That Q2 contribution brought the first half’s top line to $24.1 billion, also flat. Operating income, however, dropped by 8% in dollars--4% after stripping out currency effects--to $2.1 billion. Still, core earnings topped expectations at $1.23 per share.

Entresto, the closely watched heart failure med, only managed $32 million in quarterly sales, a number that fell short of analyst expectations. But that could change: The drug won early and enthusiastic backing in new treatment guidelines from the American College of Cardiology and the American Heart Association. Those guidelines not only backed Entresto as a treatment option, but recommended that doctors switch appropriate patients to the med.

That backing is one reason Novartis plans to sock an additional $200 million into Entresto marketing. The company plans to staff up its U.S. field salesforce, and it’ll continue a direct-to-consumer ad campaign that racked up $7.6 million in spending last month. The company stuck to its $200 million sales forecast for Entresto this year.

Meanwhile, Cosentyx is shaping up to be one of Novartis' biggest rollouts ever, CEO Joe Jimenez said Tuesday; the company is now looking for $4 billion or more in peak sales from the med. Spending more on both new launches “is absolutely the right thing to do,” Jimenez said during a press call. “There are two big catalysts for this company in the next five years. One of them is Cosentyx and one of them is Entresto, so we’re not going to let any constraints minimize the peak sales potential of that brand.”

The company’s standout products for the quarter included the usual suspects. Tasigna, the follow-up to Gleevec, racked up 15% growth to $458 million, despite the draw of cheaper Gleevec generics. The multiple sclerosis pill Gilenya kept rolling with 17% growth to $811 million, and fast-launching Cosentyx hit $260 million, putting it on track to hit blockbuster status this year. The latter has a new competitor in Eli Lilly’s Taltz, one reason Novartis plans to boost its Cosentyx investment.

Novartis also collected sales growth from the cancer meds it bought from GlaxoSmithKline, including the melanoma duo Tafinlar and Mekinist, up almost one-third to $172 million. Plus, the JAK inhibitor Jakavi, which Novartis markets outside the U.S., leapt by almost 50% to $146 million, thanks to its original rare-disease indication in myelofibrosis and a new approval in polycythemia vera.

Overall, on the drug side of Novartis’ business, pricing pressure took a toll on sales. In the pharma division--now called “innovative medicines”--volume grew by 6 percentage points, but sliding prices bit 1 percentage point off that growth. Combined with Gleevec’s generic suffering, which carved off 25% of the blockbuster’s sales, the pharma business ended the quarter up 1% to $5.1 billion.

Pricing hit harder on the generics business, Sandoz, but volume growth more than made up for it. Price erosion dragged sales down by 5 percentage points, while volume grew by 8 percentage points. But Sandoz' sales focus is changing; it's looking for big growth from biosimilars, aiming to launch 5 of the biotech knockoffs by 2020.

Meanwhile, Novartis' troubled eye-care unit Alcon made some progress toward a turnaround, though net sales fell slightly. Its surgical business, which floundered last year on declining demand, got a boost from cataract products, but lagging sales of intraocular lenses more than offset that growth.

- see the Novartis financial report (PDF)

Editor's note: This story was updated with comments from Novartis.

drug launch Earnings Generics Cosentyx Entresto Gleevec Novartis Financials Launches