Novartis Profit Dented by Investment in New Drugs -- Update

By Denise Roland 

Novartis AG said profit fell in the first quarter as it pumped investment into the launch of its new heart-failure drug Entresto that it hopes will help offset revenue lost as best-selling cancer medicine Gleevec loses out to cheaper competitors.

Basel, Switzerland-based Novartis is counting on two recently launched drugs--Entresto for heart failure and Cosentyx for psoriasis and some rheumatoid diseases--to offset a sharp decline in revenue from Gleevec, which last year started to face competition from cheaper alternatives.

Its heavy investment in those launches is denting profit. Core operating income--a measure that excludes certain one-time gains and impairments--fell 8% to $3 billion in the first quarter.

Cosentyx has ramped up quickly since its launch in 2015, notching sales of $1.1 billion last year, but Entresto has so far proved a disappointment. Also launched in 2015, the heart-failure drug generated sales of just $170 million last year, missing even Novartis's own modest goal of $200 million.

"This is going to be a slow build," said Chief Executive Joe Jimenez. "This is a brand that doesn't have competition, we are driving it."

He is betting that Entresto sales growth will accelerate this year thanks to a bigger sales force, more favorable coverage from insurers and the recent endorsement of major cardiology societies in the U.S. and Europe. Entresto sales were $84 million in the first quarter compared with $17 million a year earlier.

Also hurting core operating profit was Novartis's investment in its ailing eyecare unit Alcon, which it is considering selling or spinning off. That business, which sells contact lenses and kits for lens implant surgery, is struggling to grow amid intensifying competition, especially in the lens implant market.

Still, revenue rose in the quarter as sales of new drugs--mostly Cosentyx--more than offset Gleevec's decline. First-quarter sales were $11.5 billion, up 2% at constant currencies. Alcon and Sandoz, Novartis's generic drugs business, also contributed to sales growth, with revenue up 1% at both divisions.

Net income fell 17% to $1.7 billion in the first quarter largely due to a $200 million net charge related to the failure of acute heart failure drug serelaxin during late stage development.

Novartis confirmed its overall guidance for the year despite fine-tuning the outlook for its individual divisions, slightly raising expectations for its innovative medicines unit while lowering them for Sandoz.

Overall, Novartis still expects 2017 sales to be broadly in line with last year and for core operating profit to be flat or decline at a low single-digit percentage.

Write to Denise Roland at [e-mail]

(END) Dow Jones Newswires

April 25, 2017 03:08 ET (07:08 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.