Novartis posts earnings miss as generic rivals hurt blockbuster drug Entresto
Novartis Faces Financial Pressure Amidst Patent Expiries and Generic Competition
By Bhanvi Satija and Marleen Kaesebier
First-Quarter Results and Impact of Generic Rivals
LONDON, April 28 (Reuters) - Novartis posted first-quarter core operating profit and revenues below market expectations on Tuesday, hit by a sharper-than-expected slump in U.S. sales of its blockbuster heart drug Entresto after generic rivals entered the market.
The Swiss drugmaker is navigating its most severe period of patent expiries, led by top seller Entresto which made up 14% of sales last year, which has fueled a multi-billion dollar dealmaking spree in search of new growth drivers.
Sales of Entresto sank 42% to $1.31 billion after its U.S. patents expired last year, below analyst forecasts of $1.37 billion, according to data compiled by Visible Alpha.
Challenges from Patent Expiries and Generic Competition
The slump in sales underscores a looming challenge for Novartis as Entresto also faces patent expiries in Europe from November, and with other blockbuster drugs Cosentyx, Kesimpta and Kisqali set to come off patent in the early 2030s.
Generic competition for blood disorder drug Promacta and leukaemia treatment Tasigna is adding pressure on Novartis to offset those lost sales with newer drugs or dealmaking.
Novartis' Strategic Response
"Over the last few years we've been one of the more active deal makers in the space," CEO Vas Narasimhan told analysts. "We want to continue to have a healthy acquisition approach to make sure we have enough in our portfolio for long-term growth."
Market Reaction and Financial Performance
Generic Erosion in US Market 'Fiercer Than Expected'
Vontobel analysts wrote in a note the sales miss was down to "fiercer than expected generic erosion" in the United States.
Novartis shares fell 1.3%, but are up 1.6% so far this year.
Quarterly Financial Highlights
Total net sales for the quarter came in at $13.11 billion, compared with analysts' expectations for $13.4 billion. Operating income, adjusted for special items, declined 12% to $4.9 billion, below expectations for $5.1 billion.
Chief Financial Officer Mukul Mehta told reporters the results were in line with the firm's expectations. He expected a better second half, telling Reuters that in Europe, "the drop-off from branded sales into generics is not as steep a curve as it is in the U.S.."
The Basel-based firm expects sales to decline by $4 billion this year due to competition from generics to Entresto.
It is counting on growth of breast cancer drug Kisqali, and multiple sclerosis treatment Kesimpta to offset that hit and achieved a low single-digit overall sales growth.
It also backed its full-year forecast of a low single-digit percentage core operating income drop, excluding currency swings.
Navigating Global Drug Pricing Policies
Navigating Trump Drug Pricing Policy in US
CEO Narasimhan said the company was navigating complex a global pricing environment after U.S. President Donald Trump launched a 'most-favored-nation' policy last year to bring down U.S. prices by tying them to those agreed in some other markets.
That's led some companies to delay launches in Europe.
"Critical will be that we can secure pricing that allows us to manage the MFN policy in the U.S.," he said, adding talks for launching new skin disease drug Rhapsido in Germany and Japan were progressing.
European Pricing and Market Impact
Europe tends to pay less for medicines than the U.S., which has prompted Trump's ire. Drugmakers are wary of accepting lower European prices in case it drags down what they can charge in the larger and more lucrative U.S. market.
Narasimhan said Europe needed a "complete rethink" of how governments decide which drugs they will pay for and how much, to keep companies investing in clinical trials and manufacturing.
(Reporting by Marleen Kaesebier and Bhanvi Satija; Editing by Louise Heavens, Adam Jourdan and Bernadette Baum)
