July 19, 2016 / 5:30 AM / 3 years ago

Novartis warns 2016 profit may fall on higher heart drug spending

ZURICH (Reuters) - Novartis warned on Tuesday its profit may decline this year as it ramps up marketing spending on new heart failure drug Entresto following a disappointing start for the medicine.

Combined with falling sales of leukemia treatment Gleevec, core operating income will be “broadly in line with the prior year or decline low-single digit” at constant currencies, it said. It had previously said profit would be roughly the same.

The world’s biggest prescription drugmaker, which reported slightly better than expected second-quarter profit, is banking on new drugs such as Entresto and Cosentyx for psoriasis to offset generic competition to Gleevec.

Entresto is seen as potentially a huge product, with annual sales of $5 billion or more, but has struggled to gain traction in the all-important U.S. market since its launch last summer, although it is doing better in Europe.

Entresto sales in the second quarter were $32 million, while Cosentyx brought in $260 million. The Swiss company reiterated its forecast that Entresto would generate around $200 million in sales in the whole of 2016.

Prospects for Entresto were boosted in May when new medical guidelines on the treatment of heart failure strongly endorsed it.

Chief Executive Joe Jimenez told reporters Novartis needed to capitalize on this by spending $200 million more to market the drug in the second half.

Industry analysts said the decision to ramp up spending on sales representatives made sense, even with the downgrade to 2016 profit, but it suggested past planning shortfalls.

“We see this as a necessary spend and one that should have been made earlier,” said Deutsche Bank analyst Tim Race.

“We expect a mix of investor reactions to this downgrade, some positive but also some highlighting management planning failures given many investors have been telling them to increase Entresto investment since 2015.”

Novartis is also struggling with a weak performance by its Alcon eyecare business, although Bernstein analyst Tim Anderson said there were signs of sales turnaround here.

Second-quarter core net income, which excludes some items, fell to $2.93 billion, compared with the $2.83 billion average of forecasts from analysts polled by Reuters.

A Novartis logo is pictured on its headquarters building in Mumbai April 1, 2013. REUTERS/Vivek Prakash/File Photo

Core operating income fell 4 percent at constant currencies to $3.33 billion, also ahead of market expectations, while sales came in at $12.47 billion, down a reported 2 percent and flat at constant currencies compared with the poll average of $12.19 billion.

The shares were broadly unchanged in early trading.

Additional reporting by Ben Hirschler and John Revill; Editing by Mark Potter

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