Novartis says profit may drop

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Novartis AG said profit may fall this year as the Swiss drugmaker increases spending on the heart medicine Entresto and faces declining sales of its best-selling cancer treatment Gleevec.

Core operating income will either be about the same as 2015 or decline by a percentage in the low single digits at constant exchange rates, Novartis said Tuesday in a statement. Sales will show little change.

Novartis is depending on revenue from newer medicines like Entresto and Cosentyx for psoriasis as its blockbuster Gleevec faces generic competition in the U.S. and sales at its eye-care division Alcon slump.

Novartis fell 0.9 percent to 79.70 Swiss francs at 11:28 a.m. in Zurich. The shares have declined about 21 percent this year.

Second-quarter earnings declined 3 percent to $1.23 a share, excluding some items, the Basel, Switzerland-based company said. Analysts estimated $1.19, according to data compiled by Bloomberg. Revenue dropped 2 percent to $12.5 billion, compared with analysts’ average forecast of $12.2 billion.

Sales of Entresto were $32 million. Analysts had cut their estimates by about 25 percent in the last three months to an average of $34 million, according to data compiled by Bloomberg. Cosentyx brought in $260 million, beating estimates of $206 million. Novartis expects peak sales of Cosentyx to exceed $4 billion a year.

Successful Launch
“This is turning out to be one of the most successful launches in our history,” Chief Executive Officer Joe Jimenez told reporters on a conference call.

Not so for Entresto. The drug, projected by the company to eventually hit peak sales of $5 billion a year, has received a warmer reception in Europe than the U.S., the largest market for pharmaceuticals, since its introduction last year. After recent treatment guidelines supported the use of Entresto, the company decided to spend about $200 million more than planned in the second half of the year to add sales representatives.

“That is absolutely the right thing to do,” Jimenez said. “There are two big catalysts for this company in the next five years in terms of growth. 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.”

Alcon Investment
Novartis is also investing in marketing at its Alcon division, where sales fell 2 percent in the quarter. While that spending crimped margins in the quarter, Alcon is expected to see sales growth later in the year, the company said.

The U.S. Food and Drug Administration had some questions on Novartis’s application to market a biosimilar version of Amgen Inc.’s Neulasta, which is given to people with abnormally low levels of a type of white blood cell. Novartis said it is working with the regulator to answer the questions.

The company plans no changes to its stake in crosstown rival Roche Holding AG, Jimenez said.

“This is a financial investment with a strategic element to it,” he said. “We’ve said that we’d look to exit if the opportunity existed to re-deploy those funds into other businesses that could potentially help Novartis grow in the long term, but really, there’s no new news on the Roche stake.”

By Johannes Koch and James Paton (Bloomberg)

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About Investec

Investec is a distinctive Specialist Bank and Asset Manager. We provide a diverse range of financial products and services to a niche client base in three principal markets, the United Kingdom, South Africa and Australia, as well as certain other geographies. Investec’s strategic goals are motivated by the desire to develop an efficient and integrated business on an international scale through the active pursuit of clearly established core competencies in the group’s principal business areas.

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