Novartis posts drop in second-quarter sales, profit, hit by US currency

Novartis announced Tuesday that second-quarter sales dropped 5 percent year-over-year to $12.7 billion, falling short of analyst estimates of $12.8 billion, as the further strengthening of the US currency negatively impacted revenue by 11 percent. Net income in the period slumped 32 percent to $1.9 billion.

However, CEO Joseph Jimenez remarked "if you look at our results you have to look at them on a constant currency basis and they were very good in the second quarter." Stripping out the currency effects, overall sales rose 6 percent in the quarter. Jimenez said the company also "had a strong quarter for innovation, with US approval and launch" of the heart failure treatment Entresto and Glatopa, a generic version of Teva's Copaxone partnered with Momenta Pharmaceuticals.

In the three-month period, sales of prescription drugs slipped 4 percent to $7.8 billion, with Novartis noting that growth products, which include Gilenya, Lucentis, Afinitor, Tasigna and Xolair, recorded revenue of $4.4 billion, up 24 percent year-on-year and representing 35 percent of overall sales. Meanwhile, revenue from the Sandoz unit dropped 2 percent to $2.3 billion, although the figure was up 11 percent on a constant currency basis.

In addition, Novartis' Alcon unit posted sales of $2.6 billion, down 9 percent versus the prior-year period. Jimenez explained that the eye-care division was affected by increased competition and "a slowdown in emerging markets." Novartis added that overall growth in emerging markets increased 8 percent on a constant currency basis, led by Brazil and China, where sales rose 16 percent and 7 percent, respectively.

"We are confident we will deliver on our priorities for the year, and confirm our full-year guidance," Jimenez said. The company expects core operating income to grow by a high-single digit percentage and sales to expand at a mid-single digit rate. Novartis also raised guidance for the Sandoz unit to high single-digit sales growth, while lowering Alcon's outlook to low single-digit sales growth.

Commenting on the results, Barclays analyst Michael Leuchten said "overall not a great performance this quarter." Leuchten suggested that the results were "more messy than usual" with gains in the Sandoz division being insufficient to compensate for weakness in Alcon.

Jimenez on Tuesday also confirmed the company's expectations for Afinitor, despite recent positive news for two other drugs in renal cell cancer (RCC). Bristol-Myers Squibb announced that a Phase III study of its PD-1 inhibitor Opdivo (nivolumab) met the main goal of overall survival in previously treated patients with advanced or metastatic RCC, compared with Afinitor. Meanwhile, Exelixis said that Cometriq (cabozantinib) met the primary progression-free survival endpoint in certain patients with metastatic RCC in a Phase III trial comparing the drug to Afinitor.

"If Opdivo is approved in renal cell cancer, it will probably delay use of Afinitor in that particular indication," Jimenez conceded, adding "but because this is a multi-indication drug we still are bullish on Afinitor's growth prospects." Afinitor generated revenue of $423 million in the second quarter, rising 19 percent on a constant currency basis, with analysts predicting that the drug will reach peak sales of nearly $2.1 billion in 2018.

To read more Top Story articles, click here.