Novartis expects improved earnings at generics unit Sandoz

(Reuters) -Swiss drugmaker Novartis said earnings at its generic drugs arm Sandoz would likely be flat this year rather than declining, adding that a strategic review over the unit’s future was progressing as planned.

In a statement on Tuesday, Novartis confirmed its group guidance for 2022 core operating income to grow in a mid-single digit percentage range.

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

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

Finance Chief Harry Kirsch told journalists in a call that improved growth prospects for Sandoz did not make a change in ownership less likely.

Recovering growth “shouldn’t mean that you keep it”, he added.The pharma major also said it was now targeting $1.5 billion in savings from an ongoing group-wide cost cutting scheme, where it had previously seen savings of at least $1 billion by 2024.

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

Second-quarter core operating income declined 2% to $4.27 billion, slightly above the average analyst estimate of $4.19 billion in a Refinitiv poll.

For Novartis, which reports results in dollars, a strong dollar was a drag on the value of sales generated outside the United States.

Contributing to the decline, Novartis in May had to suspend production of precision nuclear cancer medicines known as radioligands. In addition, competition was a further drag on sales of multiple sclerosis drug Gilenya.

Providing growth momentum, quarterly revenue from heart failure drug Entresto jumped 27% to $1.13 billion, a touch below expectations.

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

CEO Vas Narasimhan is seeking to boost his efficiency credentials as the Swiss drug major is receiving huge cash windfalls, including $20.7 billion last year from the sale of its 33% stake in Roche back to the Swiss rival, and from a possible sale of Sandoz.

Despite plans to buy back up to $15 billion worth of shares, Novartis has said it will retain enough spending power to buy companies and technologies to boost its growth prospects.

Provided that internal drug development gets sufficient funding, Novartis would focus on “bolt-on” takeovers and shun large deals, said finance chief Kirsch.

He added that bolt-on transactions could still be worth several billions of dollars in view of the group’s $200 billion market value.

($1 = 0.9752 Swiss francs)

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

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