Novartis Profit Beats Estimates, Pointing to Growth
(Bloomberg) — Novartis AG reported higher-than-expected profit last quarter as newer cancer medicines offset the aging blockbuster Entresto’s loss of sales to generic rivals.
Earnings excluding some items were unchanged at $5.94 billion in the second quarter, the company said Tuesday, topping the $5.34 billion average estimate of analysts surveyed by Bloomberg. Sales were also better than anticipated, signaling a return to growth.
Chief Executive Officer Vas Narasimhan’s strategy to focus on innovative medicines faces a key test this year as former best-sellers like the heart drug Entresto lose sales to cheaper copies before enough new medicines are ready to power earnings.
Novartis shares rose as much as 3.25% on Tuesday. The stock climbed about 12% in the year ended Monday, more than those of Swiss rival Roche Holding AG, which also reports earnings this week.
Last quarter probably marked the worst of the patent cliff for Novartis, analysts said. The company reiterated its forecast for the year, with sales rising but core operating profit showing a low single-digit decline decline, as well as the second half.
“We are surprised that the good second quarter does not trigger a guidance upgrade,” said Stefan Schneider, an analyst at Vontobel.
Among the medicines meant to boost growth is a new pill for chronic skin disease called Rhapsido, which garnered $64 million in revenue last quarter after launching in the US and China, exceeding estimates.
Others are still going through clinical tests, with Novartis set to report key trial results for experimental treatments for heart disease and multiple sclerosis, including the first medicine Del-desiran, which targets the genetic cause of a muscle disease, from its $12 billion acquisition of Avidity Biosciences.
The company said Tuesday it remains focused on those results, which could raise its mid- to long-term outlook.
CEO’s Deals
Sales of Entresto, once Novartis’s top seller, plunged 50% last quarter, more than analysts expected.
To bolster growth, Narasimhan has announced more than $15 billion of deals over the past year. Acquisitions include Avidity and its pipeline of RNA medicines, Tourmaline Bio, which is working on inflammation linked to heart disease, and Synnovation Therapeutics, whose experimental compounds target cancer-driving proteins. More recently, Novartis agreed to buy Myricx Bio, an unusually early-stage bet on cancer drugs that have only just entered clinical tests.
Novartis isn’t done shopping for deals. The company will continue pursuing its strategy of buying smaller biotech companies while remaining open to larger acquisitions, Narasimhan said during a media call on Tuesday.
“It’s a portfolio of bets we make on emerging technologies,” he said. “And if only a few of those hit, then we’ve definitely paid back the portfolio.”
The company has pledged to build seven new facilities in the US, part of a broader $23 billion push to expand its manufacturing footprint there and avoid industry tariffs. Much of the investment will focus on radioligand therapy, which uses targeted drugs to deliver radiation directly to tumors. Novartis is the only company with two approved medicines in the field, Pluvicto and Lutathera.
–With assistance from Lisa Pham.
(Updates with management quotes in paragraph 12.)
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