Novartis expects earnings improvement from Sandoz generics unit

A sign marks the facilities of the Novartis Institutes for BioMedical Research in Cambridge, Massachusetts, U.S., June 16, 2021. REUTERS/Brian Snyder

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July 19 (Reuters) – Swiss drugmaker Novartis (NOVN.S) said profits at its generic drugs arm Sandoz were likely to be flat this year rather than falling, adding that a strategic review of the future of the unit was progressing as planned.

In a statement on Tuesday, Novartis confirmed its guidance for core operating profit growth for 2022 in the single-digit percentage range.

The company repeated its previous indications that it would provide an update on the future of Sandoz by the end of 2022.

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During the second quarter, the generic drugs business benefited from a higher number of prescriptions in markets outside the United States as patients were no longer held back by pandemic-related restrictions.

Chief Financial Officer Harry Kirsch told reporters on a call that Sandoz’s improving growth outlook didn’t make a change in ownership any less likely.

The resumption of growth “does not have to mean that you keep it,” he added. The big pharma also said it is now targeting $1.5 billion in savings through an ongoing group-wide cost-cutting program, where it has already achieved savings of at least $1. billion by 2024.

“The implementation of our streamlined organizational model is progressing well,” the company said in a statement.

Second-quarter core operating profit fell 2% to $4.27 billion, slightly above analysts’ average estimate of $4.19 billion in a Refinitiv poll.

For Novartis, which publishes its results in dollars, a strong dollar weighed on the value of sales generated outside the United States.

Contributing to the decline, Novartis had to suspend production of precision nuclear cancer drugs called radioligands in May. In addition, competition has further hampered sales of Gilenya, a drug for multiple sclerosis.

Offering growth momentum, quarterly revenue for heart failure drug Entresto jumped 27% to $1.13 billion, slightly below expectations.

Sales of the psoriasis and arthritis drug Cosentyx rose 9% to $1.28 billion, in line with market consensus.

CEO Vas Narasimhan seeks to bolster his efficiency credentials as the big Swiss pharma receives huge cash gains, including $20.7 billion last year from the sale of his 33% stake in Roche (ROG.S) to the Swiss rival, and a possible sale of Sandoz.

Despite share buyback plans worth up to $15 billion, Novartis said it would retain enough buying power to buy businesses and technology to boost its growth prospects.

Provided internal drug development received sufficient funding, Novartis would focus on “bolted” takeovers and avoid big deals, Chief Financial Officer Kirsch said.

He added that the add-on deals could still be worth billions of dollars given the group’s $200 billion market value.

($1 = 0.9752 Swiss francs)

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Reporting by Ludwig Burger, editing by Rachel More, Kim Coghill and Louise Heavens

Our standards: The Thomson Reuters Trust Principles.

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