Entresto's $5bn Challenge

| About: Novartis AG (NVS)

Where to place the blame for Entresto’s poor launch outlook is a difficult task: should it lie with Novartis for failing to anticipate a muscular payer response, or with sellside analysts who over-hyped its trajectory?

Whatever the case it is fair to say that, with a $17m first quarter under its belt, the Swiss group will need a fast finish on the year to achieve even its modest goal of $200m in 2016 revenue. Novartis (NYSE:NVS) still believes that it can reach $5bn in annual sales in its currently approved indication, chronic heart failure with reduced ejection fraction – although this looks increasingly like a long shot.

The data showing a survival benefit over Vasotec have not been as persuasive as Novartis would have hoped – potential label expansions could accelerate uptake after 2020, but the immediate Entresto problem is being met with a sales and marketing charge.

We told you so?

For its part, Novartis argued that it did warn investors about the formulary blocks that meant virtually no US patients had coverage for the $4,600-a-year drug, a combination of the active ingredient in Diovan with a second agent that improves fluid balance.

What this has meant, said the group's pharmaceuticals division chief, David Epstein, is that “early adopters” who wrote Entresto prescriptions saw them go unfilled, and gave up until insurance coverage was resolved.

That has been coupled with an unwillingness to switch stable patients along with prior authorization requirements for prescribers. An unusual situation has emerged where market penetration is higher in some European countries than in the US, because no prior authorization barriers are in place in the former, Mr Epstein said in Novartis’s first-quarter earnings call with analysts.

At launch, no Medicare patients had coverage for Entresto, along with 81% of the privately insured. Today, executives said 100% of privately insured patients and 91% of Medicare patients are in plans that cover Entresto, and more than half are in plans that have put the pill on more favorable co-payment tiers.

Nevertheless, Novartis believes that a rebooted sales and marketing plan – including a 50% expansion of its sales force – will lead to an inflection point in the second six months of the year.

The $200m guidance is a major comedown for Entresto, which had a 2016 consensus forecast of nearly $900m at its launch in mid-2015, according to EvaluatePharma.

More eligible users

If Novartis managed to reverse Entresto's woeful launch, this would be in contrast to the performance of other recent products for severe cardiovascular conditions.

Lilly’s (NYSE:LLY) Effient and AstraZeneca’s (NYSE:AZN) Brilinta, both pills for acute coronary syndrome, have fallen well short of their forecasts at launch, with the former only peaking at around $500m before starting to decline with patent expiry next year.

Brilinta has got on track to achieving blockbuster status by expanding use – namely the FDA’s removal of a 12-month time limit on its use last year. This is a lesson Novartis seems to have taken on board with Entresto, with a phase III trial under way in heart failure patients with preserved ejection fraction, and a recently initiated trial in myocardial infarction patients at risk of heart failure.

But, as Astra can tell anybody, getting those new indications is anything but easy (Brilinta and Pascal Soriot lose yet more lustre, March 23, 2016). Novartis needs most of all to execute well with the heart failure patients for which Entresto is currently authorized – and it has yet to prove that it can.