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Novartis remains committed to Sandoz despite Q1 sales miss, COVID-19 disruption


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Novartis remains committed to Sandoz despite Q1 sales miss, COVID-19 disruption

Novartis AG said record low flu, cough and cold rates caused by social distancing, mask-wearing and national lockdowns impacted sales at its Sandoz International GmbH generics business and across its dermatology, ophthalmology and breast cancer portfolios.

The Basel, Switzerland-based pharmaceutical group nevertheless remains committed to Sandoz, which saw a drop in first-quarter sales of 13% on a constant currency basis, and is wedded to its medium- to long-term goal of mid-single-digit sales growth at the generics unit.

Since taking over as CEO in 2018, Vas Narasimhan has spun off Alcon, Novartis' eye care business, and made moves to carve out Sandoz into a stand-alone business that many analysts suspect might eventually be divested.

SNL Image

Novartis CEO Vas Narasimhan
Source: Novartis

Speaking to reporters April 27 after Novartis reported first-quarter sales, Narasimhan said the current disruption is driven by COVID-19-related demand reductions across healthcare systems, which he expects will stabilize as the year progresses.

"Sandoz doesn't generate demand, it responds to demand," said the CEO. "In many countries, there's important synergies that we get from having both generics and an innovative medicines unit. So we continue to remain committed to the business and ensuring that we get it on the right course over the medium to long term."

Earlier, Novartis reiterated its full-year outlook but lowered guidance for Sandoz after sales in the unit fell, missing Jefferies analyst Peter Welford's forecasts by 5%. Within the innovative medicines unit, sales for the quarter came in at $10.10 billion, against Jefferies' $9.79 billion estimate and consensus expectations at $10.00 billion.

Sales of difficult-to-administer medicines like spinal muscular atrophy treatment Zolgensma bounced back from pandemic-related falls caused by hospital restrictions, gaining 81% in the quarter to $319 million, while sales of one-time cancer therapy Kymriah rose 55% to $151 million following strong growth across all regions. After recent approval in Singapore, Kymriah is the first commercial chimeric antigen receptor T cell therapy in Southeast Asia. Sales of heart treatment Entresto were $69 million higher than SG Cowen's estimate at $789 million, while Cosentyx was boosted by new indications and inclusion on China's National Reimbursement Drug List, the CEO said. Sales of the psoriasis treatment rose 11% year on year to $1.05 billion for the quarter.

Shift in M&A strategy

After in-licensing BeiGene Ltd.'s cancer therapy tislelizumab for $650 million up front and further milestone payments, Narasimhan indicated a shift in the company's M&A strategy toward similar licensing and smaller deals.

"In terms of M&A, we have shifted to a more opportunistic approach," he said. "We continue to look at small deals where we've done a number in the research area over the course of last year as well as licensing deals. But other than that, we will be opportunistic when we see something but nothing else planned at this point in time."

More immediately, Novartis is working with Molecular Partners AG to develop, manufacture and commercialize two antiviral candidates to potentially prevent and treat COVID-19. The Swiss pharma giant has also committed to using its manufacturing expertise to help other pharmaceutical companies during the pandemic, notably Pfizer Inc.-BioNTech SE and CureVac NV, which have developed mRNA vaccines against the coronavirus.

"We'll continue to look to maximize the use of our facilities around the world as one of the largest producers of biologics and small molecules. We are happy to leverage that capacity to enable more vaccine distribution around the world," Narasimhan said.