Novartis’ (NVS, Financial) earnings decline continues this year as the company reported a 2% drop in its second quarter revenue to $12.47 billion from $12.694 billion in the prior period – slightly better than the 3% decline the company reported during the first quarter.
Though on a constant currency basis revenue growth was flat for the quarter and dropped 2% for the first half of the year, Novartis’ revenue slide that started in 2013 is yet to be arrested.
Novartis stock has been recovering nicely since February, but it is still down by 8% since the start of this year. Novartis sales have been hit hard primarily by the declining fortunes of its bestseller Gleevec, a blockbuster cancer drug that netted $4.5 billion in sales in 2015.
"[W]e are going through what is the biggest patent expiration that we have seen since Diovan with Gleevec," CEO Joe Jimenez said during the company's fourth-quarter earnings call.
A billion-dollar drug falling off a patent cliff is in itself a huge blow to any company, but when that drug is your top seller that accounts for nearly 8% of your overall sales, then you are going to be in pain for some time. Novartis is now at that stage as it waits for products like Entresto, a heart medicine, and Cosentyx, for psoriasis, to offset the losses.
“The company's Cosentyx (secukinumab) is forecast to top $1 billion in sales by 2020, but it will have to compete with entrenched drugs such as AbbVie's (ABBV, Financial) top-selling Humira, Amgen's (AMGN, Financial) standout drug Enbrel and Johnson & Johnson's (JNJ, Financial) Stelara.” – Fiercepharma
With that kind of competition, a billion-dollar forecast isn’t very encouraging even within a five-year time frame. However, with much to lose in the fight against Humira for the ankylosing spondylitis and psoriatic arthritis markets, Novartis has announced a series of studies to compare the responses of both drugs on the said conditions.
Novartis has a lot riding on Entresto and is doubling down on marketing efforts. With sales from its eye care division Alcon on the wane, Novartis knows the only way out of the predicament is through a blockbuster drug.
“Novartis said Wednesday at its investor and analyst meeting that it still expects its heart failure treatment Entresto (sacubitril/valsartan) to generate peak sales of around $5 billion despite first-quarter sales of $17 million coming in below analyst estimates. The company also reiterated its forecast for the product to record revenue this year of $200 million.” – Firstword Pharma
Entresto recorded $17 million in sales during the first quarter and nearly doubled it to $32 million during the second quarter; its revenue forecast of $200 million this year seems a few billion miles away. Jimenez, however, reiterated during the second quarter earnings call that Entresto is well on track to get to its forecast of $200 million in sales this year.
Novartis expects generic competition to impact $3.2 billion sales in 2016; excluding Gleevec, the company expects to grow in mid-single digits this year. With the company stepping up its investments for Entresto, Novartis is expecting its core operating income to be in line with last year or decline in low single digits.
It is indeed a tough year for Novartis as it tries to wriggle its way out of the Gleevec cliff. It needs time for other products to grow to a level from which they can hold the company’s overall sales at a break-even-plus level at least.
A lot is riding on Entresto and how it performs in the next two quarters. If Novartis hits its forecast for the drug, it can get the stock to move up. If not, it will more than likely continue the current downward trajectory.
Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.
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