NVS Novartis AG

By Denise Roland 

Swiss pharmaceutical company Novartis AG cut its profit guidance for the year as it ramps up investment in its new heart-failure drug to offset falling sales of cancer blockbuster Gleevec.

Joe Jimenez, chief executive, said he had made a "hard decision" to boost investment in Entresto by an additional $200 million this year, a move that could cost the company 1-2% of core operating income.

"This is absolutely the right thing to do," he said. "There are two big catalysts for this company over the next two years in terms of growth. One is Entresto...and I'm not going to let any constraints minimize the peak sales potential of that brand."

Mr. Jimenez said the extra spend would mostly go into building a sales force targeting primary-care physicians, who "will need more education about Entresto."

The company updated guidance to say core operating income could fall by a low single digit percentage, having previously said it would be broadly in line with 2015. It held revenue guidance steady, saying sales would be broadly in line with 2015.

The heart-failure drug, which launched a year ago, got off to a slow start, reflecting doctors' hesitation to switch stable patients onto a new medicine and delays in securing reimbursement from health insurers in the U.S.

But growth is picking up as more insurers have agreed to cover the drug, and after cardiology associations in the U.S. and EU updated their prescribing guidelines to recommend Entresto as the preferred drug in certain patients. Sales of Entresto were $32 million in the second quarter, and Novartis expects the drug to generate $200 million in revenue for the full year.

Basel, Switzerland-based Novartis said net income was $1.8 billion in the three months to June 30, 3% lower than in the year earlier period. Core net income, a measure that strips out one-time gains or losses, fell 5% to $2.9 billion, while revenue dipped 2% to $12.5 billion, beating analyst expectations of $2.8 billion and $12.3 billion respectively.

Stripping out the negative effect of the strong dollar, net income and sales were flat, and core net income was down 2%.

Novartis is under pressure from falling sales of its best-selling cancer drug Gleevec, which has faced competition from a cheaper copycat in the U.S. since February when it came off patent. That dragged sales at the company's innovative medicines unit down 1% at constant currencies to $8.4 billion, despite a 23% increase in revenue from Novartis' new drugs.

As well as Entresto, Novartis is counting on Cosentyx, its new drug for psoriasis and certain rheumatic diseases, to play a key role in driving growth. That drug generated $260 million in the second quarter, which Mr. Jimenez said was significantly ahead of expectations. Another bright spot was Gilenya, for multiple sclerosis, which increased revenue 17% at constant currencies to $811 million in the quarter.

The company is also investing heavily in turning around its eyecare unit Alcon, which is struggling amid intensifying competition in the contact lens market. Sales at Alcon were $1.5 billion, down 1% at constant currencies, due to lower sales of contact lenses and surgical equipment.

Sales at its generic drug business Sandoz were up 3% at constant currencies to $2.6 billion as strong volume growth more than offset lower prices.

Write to Denise Roland at Denise.Roland@wsj.com

(END) Dow Jones Newswires

July 19, 2016 04:21 ET (08:21 GMT)

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