Novartis Earnings Miss Estimates in Q4

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Novartis (NVS) reported fourth quarter 2013 earnings per share of 83 cents, up 1% from the year-ago period. Core earnings per share came in at $1.20, down 3% from the year-ago period and below the Zacks Consensus Estimate of $1.22.

All growth rates mentioned below are on a year-on-year basis and at constant exchange rates (:CER).

Fourth quarter revenues increased 4% year over year to $15.1 billion but missed the Zacks Consensus Estimate of $15.4 billion.

Quarter in Detail

Novartis operates in five divisions: Pharmaceuticals, Alcon, Generics (Sandoz), Vaccines & Diagnostics and Consumer Health.

The Pharmaceuticals division recorded sales of $8.3 billion in the reported quarter, up 4% driven by strong volume growth. The division continues to benefit from the delayed entry of generic competition for Diovan monotherapy in the U.S. Diovan is indicated for hypertension.

Key drugs at Novartis such as Gilenya, Afinitor, Tasigna, Galvus, Xolair, Arcapta Neohaler/Onbrez Breezhaler, Seebri Breezhaler and Jakavi contributed 40% to total sales in the fourth quarter of 2013.

The Alcon Division recorded revenues of $2.7 billion in the fourth quarter, up 6% driven by growth in the Surgical Franchise. The growth in the Surgical Franchise was driven by demand for laser technology. Additionally, vision care business increased driven by strong sales in contact lenses. Sales in Ophthalmic Pharmaceuticals were driven by market share gains across fixed dose combination glaucoma and infection/inflammation products.

Sales from the Sandoz division increased 1% to $2.4 billion primarily due to higher sales of generic valsartan HCT in the U.S. and four months of Fougera sales.

Sales at the Vaccines and Diagnostics division were up 3% to $655 million. The growth in this division was driven by seasonal influenza, pre-pandemic sales including H7N9 in the U.S. and Menveo sales.

Consumer Health sales at Novartis were up 10% to $1.0 billion driven by strong growth in key brands along with re-launches of several products that were adversely impacted by supply issues in 2012.

Full year Results

Sales in 2013 came in at $57.9 billion, up 4% from 2012 but missing the Zacks Consensus Estimate of $58.1 billion. The entry of generics (Diovan and Zometa/Aclasta) impacted sales by $2.2 billion. Core earnings per share of $5.09 were up 4% from a year ago and beat the Zacks Consensus Estimate of $5.07 per share.

2014 Outlook

Novartis expects sales to increase in low to mid single digits in 2014. Assuming the generic Diovan Mono is launched in the U.S in the second quarter of 2014, generics are projected to impact sales by $3.0 billion in 2014 as compared to $2.2 billion in 2013.

Pipeline Update

Novartis received 18 product approvals in 2013. Key among them includes – Ultibro Breezhaler for chronic obstructive pulmonary disease (:COPD) in Europe, Bexsero for MenB infections, approval for AirFluSal Forspiro for asthma and COPD in the EU. Novartis also filed AIN457 for approval in the U.S. and EU for moderate-to-severe plaque psoriasis.

The company’s breast cancer candidate LEE011 has advanced into a phase III trial. Meanwhile, Sandoz also advanced its biosimilars pipeline by initiating a clinical trial on Abbvie’s (ABBV) Humira (adalimumab).

We remind investors that Novartis sold its blood transfusion diagnostics business to Grifols in 2013 for $1.7 billion.

Our Take

Fourth quarter results were disappointing as Novartis missed our estimates. Sales of Lucnetis and Gilenya were also disappointing. We expect the entry of generic Diovan Meno to impact sales in the second half of 2014. We remind investors that Diovan was one of the key drugs of Novartis, generating over $3.5 billion in sales.

Novartis currently carries a Zacks Rank #3 (Hold). Right now, companies like Allergan (AGN) and Forest Laboratories (FRX) look well positioned. Both carry a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on FRX
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