Novartis joins Pfizer in halting U.S. drug price hikes

[July 18, 2018]   By John Miller

ZURICH (Reuters) - Novartis <NOVN.S> expects to hit the top of its 2018 sales guidance after a strong second quarter, the CEO said, despite joining Pfizer <PFE.N> in freezing its U.S. drug prices for the rest of the year following pressure from President Donald Trump.

Shares in the Swiss company rose 2.7 percent in early trading in Zurich on Wednesday.

Second-quarter core operating profit rose 7 percent to $3.54 billion, it said, beating the average forecast of $3.46 billion in a Reuters poll. Sales climbed 5 percent to $13.16 billion, topping the $12.92 billion forecast.

Chief Executive Vas Narasimhan said Novartis would likely easily achieve mid-single digit percentage sales growth for 2018, on rising demand for psoriasis-and-arthritis drug Cosentyx and robust sales of heart-failure medicine Entresto.

Full-year operating profit should grow in the mid-to-upper single digit percentages, he said.

"We would expect to see, assuming continued momentum like we're seeing now, to be at the high end of that range," Narasimhan said, adding that this would come without price hikes as Novartis keeps the lid on medicine costs under pressure from U.S. lawmakers and Trump.

Trump told Pfizer CEO Ian Read this month that his price hikes, effective July 1, had complicated his drug pricing plans, prompting Read to reverse course.

"We don't plan to take any further price increases in the United States for 2018," the Novartis CEO said. "Right now, in a very dynamic environment in the United States ... we view it as the prudent course."

Narasimhan told Reuters that, unlike Pfizer's Read, he did not have a direct conversation with Trump but he said his company was speaking to the federal Department of Health and Human Services about the U.S. administration's "blueprint" to cut drug prices.

"They're also wanting to understand what is our perspective on pricing, and how the blueprint might affect that," he said.

Novartis's net drug prices this year are "flat to declining," he said, including the impact from its Sandoz generics unit where price pressure on its U.S. pill business spurred Novartis to predict falling sales this year after previously holding out hope they would remain steady.

The logo of Swiss drugmaker Novartis is seen outside the company's offices in Athens, Greece, February 6, 2018. REUTERS/Costas Baltas/File Photo

Narasimhan said he was still reviewing options for the U.S. generics business, but said Novartis remained committed to its Sandoz unit as a whole.

Ahead of the planned spinoff of Novartis's Alcon eye-care business to shareholders, set for early next year, Novartis raised the unit's sales guidance to mid-single digit percentage growth for 2018 after revenue in the second quarter grew 5 percent to $1.8 billion.

Second-quarter growth was also helped by a 40 percent increase in Cosentyx sales to $701 billion, a development analysts said was a relief after sales of the medicine missed expectations at the start of 2018.

"It confirms Q1's blip was a combination of not just rebates but also wholesaler destocking," Deutsche Bank's Tim Race wrote in a note. "All in all, we sum up the quarter as solid."

CASE CLOSED?

Novartis has been in the firing line over a $1.2 million contract with Trump's former lawyer for consulting work. U.S. lawmakers accused the firm last week of misleading the public about the depth of its contacts with Michael Cohen. Novartis disputes this.

Narasimhan, who has said the contract was a mistake, said no outstanding U.S. government or congressional inquiries remained into his company's ties to Cohen's firm that paid $130,000 to pornographic film actress Stormy Daniels.

"I view the Cohen issue as closed at this point," he said. "We're really focused on our future."

Narasimhan said Novartis was on track to file for regulatory approval by October of its gene therapy for spinal muscular atrophy, which came with its $8.7 billion purchase of AveXis.

He also said he expected the launch of multiple sclerosis drug BAF312 in early 2019.

(Reporting by John Miller; Editing by Jason Neely and Edmund Blair)

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