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Novartis has spent much of the last year overhauling its generics division, Sandoz, by increasing its focus on hard-to-make drugs and doubling down on its use of digital technologies to improve everything from drug development to commercialization. Those efforts are paying off, the company said during its second-quarter earnings release earlier this week.

But are they really? Or was the company premature in raising its full-year expectations for Sandoz from “broadly in line” to “low-single-digit growth” at a time when pricing pressure in the U.S. is making it difficult for many generics makers to compete?

That question weighed on the minds of some Wall Street analysts Thursday after Novartis reported that Sandoz’s sales jumped 3% year-over-year to $2.4 billion during the second quarter, despite price erosion of 7%, most of which occurred in the U.S.

On the surface, the Sandoz results looked “encouraging,” analysts from RBC Capital Markets said in a note to investors, but “the declines in the U.S. remain in the mid-teens with [a] turnaround not yet being seen.”

Analysts at SVB Leerink dug into the Sandoz numbers, comparing them to National Average Drug Acquisition Cost (NADAC) data, and they didn’t like what they found. NADAC reports just 4% generic price erosion in the U.S., “an improvement from historical levels over the past two years,” the analysts wrote in a note to clients. Sandoz’s price erosion was better than the 9% the company reported in the first quarter, but overall, it “doesn’t appear to be indicating” the improving trends in the broader U.S. generics market, the SVB Leerink team said.

Last September, Novartis kicked the Sandoz turnaround effort into high gear by offloading 300 underperforming generics in its oral solids and dermatology product lines to Aurobindo for $1 billion. That deal included exiting several manufacturing plants.

Meanwhile, Novartis has been giving the Sandoz division more autonomy to innovate, bringing in ex-GlaxoSmithKline digital chief Richard Saynor as CEO. In addition to boosting its focus on digital technologies, Sandoz signed a deal to market Shionogi’s drug to treat opioid-induced constipation, Rizmoic, in the U.K., the Netherlands and Germany.

But analysts at Wells Fargo aren’t convinced that those initiatives are enough to counteract the struggling U.S. market for generics. They believe Sandoz’s second-quarter results came from Novartis “having severely pruned its U.S. core generics business in the past year, and as such, the negative impact in the U.S. is not as severe as it would have been if the rationalization had not happened,” they wrote in a post-earnings note.

Novartis’ generics turnaround effort has been complicated by its rivalries with up-and-coming Indian generics makers like Dr. Reddy’s, Sun Pharma and Cipla. In fact, over the past year, five Indian companies and Canada’s Apotex have outpaced Sandoz and other stalwarts in U.S. prescriptions for generic drugs, Evercore ISI reported in April.

Novartis CEO Vas Narasimhan said he’s holding out hope that upcoming launches from Sandoz’s generic and biosimilar pipeline will drive the growth the company is expecting. They include inhaled drugs as well as injectables, and potentially a biosimilar version of Amgen’s blockbuster Neulasta.

During the earnings call, Narasimhan said he’s “proud with how Sandoz is performing ex-U.S.,” and that “within the U.S., “our team continues to work hard in what is a challenging environment.” Still, Narasimhan conceded, “we haven’t seen stabilization in that core [generics] business in the U.S.”

By Arlene Weintraub

Source: Fierce Pharma