(Reuters) — A weak performance from eyecare division Alcon, plus the strong dollar, hit Novartis (NYSE:NVS) in the 2nd quarter, scuppering hopes that the Swiss drugmaker would raise its 2015 financial outlook.
The difficulties at Alcon reflected lower sales of contact lenses, intraocular lenses and surgical equipment, offsetting a solid showing in pharmaceuticals and an impressive sales jump within the Sandoz generics business.
With overall quarterly core net income falling short of expectations, Novartis lowered its full-year sales forecast for Alcon and raised guidance for Sandoz.
The unchanged overall outlook for the year disappointed investors and shares in the company dropped 2.5%, retreating from recent record highs.
“Hopes of a mid-year guidance upgrade have been dashed due to Alcon,” Berenberg Bank analyst Alistair Campbell said. Novartis acquired the last remaining stake in Alcon in 2011 for $12.9 billion.
Still, the hit from the dollar, in which Novartis posts results, had been expected and the group can now look forward to accelerating underlying growth as it rolls out innovative new drugs, such as heart failure treatment Entresto, and more copies of complex biotech medicines.
Expectations for Entresto have been building since it won early U.S. approval and Novartis set a higher than expected price, with analysts now forecasting $4.7 billion of sales in 2020, according to Thomson Reuters Cortellis.
CEO Joe Jimenez said Entresto sales would take time to ramp up but growth would accelerate in 2016. Reception to the new drug, which Novartis started shipping within 24 hours of U.S. approval this month, has been good and there was little resistance to the $12.50 daily cost.
“The average hospital stay for a heart failure patient in the United States is $11,000,” Jimenez told reporters. “So we are not receiving pushback on the price because I think this is seen as good value.”
That will buffer the company from the impact of cheaper copycat competition to its popular blood pressure medicine, Diovan, and the looming loss of patent protection on its blockbuster leukaemia drug, Glivec.
Jimenez added that he remains bullish on cancer drug Afinitor despite rising competition.
The $20 billion asset swap with GSK is part of a Novartis strategy to focus on fewer, higher-margin businesses.
Bernstein analyst Tim Anderson said Sandoz had been the star of the quarter, helped by the launch of Glatopa, a copy of Teva’s multiple sclerosis biotech drug Copaxone.
Novartis said that second-quarter net sales from continuing operations fell 5% to $12.69 billion and were up 6% in constant currencies. Core net income of $3.1 billion was down 8%t in dollar terms and up 5% in constant currencies. Analysts in a Reuters poll had forecast total group net sales of $12.8 billion and group core net income of $3.2 billion.
Novartis maintained its 2015 guidance of mid-single-digit sales growth in 2015 and high-single-digit growth in core operating income after stripping out currency fluctuations.