July 17 (Bloomberg) -- Novartis AG, the world’s largest drugmaker by revenue, reported second-quarter profit that missed analysts’ estimates, dragged down by declining sales and a worsening loss in the vaccine division it’s selling.
Earnings excluding some items increased 3 percent to $3.28 billion, or $1.34 a share, Basel, Switzerland-based Novartis said in a statement today. The result fell short of the $1.37 a share average forecast from 11 analysts compiled by Bloomberg. Novartis repeated its full-year sales and profit forecasts.
Novartis said in April it would buy GlaxoSmithKline Plc’s cancer business, sell its own vaccines and animal-health units and set up a consumer health joint venture with Glaxo in a set of deals worth as much as $28.5 billion. Investors are more interested in results to be presented in August from a trial of a heart failure drug that could be Novartis’s biggest medicine than in today’s numbers, said Michael Leuchten, an analyst at Barclays Plc in London.
“When all’s said and done they’re going to get away with having a slightly weak set of numbers because the focus is slightly different,” Leuchten said by phone.
Novartis shares fell 1.7 percent to 79.75 Swiss francs in Zurich. The stock has returned 20 percent including reinvested dividends in the past year, almost matching the return for the Bloomberg Europe Pharmaceutical Index.
In addition to arranging the Glaxo deal and selling two units, Chief Executive Officer Joe Jimenez is cutting administrative costs as the company prepares to face generic competition on its two best-selling drugs.
“This is going to be a process over time that allows us to continually lower our costs, continually drive margin growth at a time when we’re innovating,” Jimenez said on a call with reporters today. “I feel very positive about the long-term prospects to maintain good productivity.”
Full-year sales will grow at a low- to mid-single digit percentage in constant currencies and core operating income will expand more than sales, Novartis said, reiterating the forecast it made in January and repeated in April. The company added today that operating income will increase at a mid- to high-single-digit rate.
Novartis said in March it planned to seek approval for an experimental treatment for chronic heart failure sooner than expected after the drug, LCZ696, worked so well in a trial that the study was stopped early. Results from the trial will be presented on Aug. 31 at a medical meeting in Barcelona.
“The story is not really in the figures today, it’s the results that we’re going to see on August 31st because that could really be a very big product,” said Birgit Kulhoff, an analyst at Rahn & Bodmer Co. in Zurich.
Sales from the vaccines business Novartis is selling slumped by 14 percent in constant currencies, and that division’s loss widened. That was because of a large shipment of childhood vaccines a year ago that made the year-on-year comparison unfavorable, which “GSK understands,” Jimenez said on the call.
Novartis will face generic competition from February 2016 on its best-selling drug, the cancer medicine Gleevec, after settling a lawsuit in May with India’s Sun Pharmaceutical Industries Ltd.
The loss of revenue on Gleevec “nicely coincides with the Glaxo products coming in and becoming more profitable,” Leuchten said. “The strategy for now is to get these deals done. The three deals with Glaxo are clearly interlinked, so if one of them falls over all three of them fall over, which I don’t think either party wants.”
Novartis also expects declining sales of its second-top seller, the blood-pressure pill Diovan, after India’s Ranbaxy Laboratories Inc. last month won U.S. approval to make a generic version of the drug, almost two years after it lost patent protection.
Ranbaxy held exclusive rights to copy Diovan for the first six months of the medicine’s generic period though it couldn’t manufacture the drug after plants in India failed inspections, prompting Novartis to twice raise its sales estimates last year because of the lack of competition. Diovan garnered $3.5 billion in sales last year.
Second-quarter sales climbed 2 percent to $14.6 billion, missing the average analyst estimate of $14.8 billion. Revenue from so-called growth products, which are those introduced in 2009 or later, or which have patents extending to at least 2018, climbed 18 percent to $4.7 billion. They accounted for 32 percent of sales in the quarter.
The company this week announced a partnership with Google Inc. to develop contact lenses with embedded electronics to improve vision and monitor insulin levels in diabetics.
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