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Novartis (NVS) Q1 Earnings Beat Estimates, Revenues Up Y/Y

Zacks Equity Research

Shares of Swiss pharma Novartis AG NVS are up in pre-market trading after it beat on earnings in the first quarter. The company also raised its guidance.

First-quarter 2019 core earnings (excluding one-time charges) of $1.20 per share beat the Zacks Consensus Estimate of $1.11 and increased from $1.15 recorded in the year-ago quarter.

Novartis AG Price, Consensus and EPS Surprise


Novartis AG Price, Consensus and EPS Surprise | Novartis AG Quote

Revenues rose 2% year over year to $11.1 billion but marginally missed the Zacks Consensus Estimate of $11.2 billion.

All growth rates mentioned below are on a year-over-year basis and at constant exchange rates.

Quarter in Detail

Novartis operates under two segments: Innovative Medicines (pharmaceuticals) and Sandoz (generics).

The Innovative Medicines division recorded sales of $8.8 billion, up 10% year over year. Within this segment, Pharmaceuticals business unit grew 11%, as psoriasis drug Cosentyx continues to gain traction. Cosentyx sales increased 41% to $791 million, driven by strong demand growth in all indications. Entresto sales grew 85% to $357 million, driven by increased worldwide uptake.

Oncology unit increased 9%, driven by solid performance of Lutathera, Promacta and Kisqali. Lutathera was added to Novartis’ portfolio from the Advanced Accelerator Applications (AAA) acquisition. Sales from AAA came in at $163 million, driven by the growth in sales of the drug ($106 million). Kisqali sales were up 115%, driven by use in first-line metastatic breast cancer patients, who are independent of menopausal status or combination partner. Promacta sales grew 24% on increased use in chronic immune thrombocytopenia.

Sales at the Sandoz division were $2.3 billion, down 2% due to price erosion in the United States. Biopharmaceuticals sales grew 11%, mainly driven by strong double-digit growth in Rixathon, the biosimilar version of Roche’s RHHBY Rituxan (rituximab); Erelzi, the biosimilar of Enbrel; and Hyrimoz (filgrastim) in Europe.

Business Restructuring

The Alcon business was spun-off as a separate public company on Apr 9, following the shareholder vote on Feb 28.

Novartis expects to complete the previously-announced divestment of the Sandoz US oral solids and dermatology businesses in 2019.  

Outlook Updated

The company expects net sales in 2019 to grow mid-single digit. Operating income is now expected in high-single digits compared to the earlier guidance of growth in mid to single digits. Innovative Medicines revenues are projected to grow mid-single digit. Revenues from Sandoz are expected to be broadly in-line with that in 2018.

Pipeline Update

The pipeline progress during the first quarter was encouraging. The FDA approved Mayzent for the treatment of adults with relapsing forms of multiple sclerosis (MS), including secondary progressive multiple sclerosis (SPMS) with active disease, relapsing remitting multiple sclerosis (RRMS) and clinically isolated syndrome (CIS).

Cosentyx was approved in China for moderate-to-severe plaque psoriasis in adult patients.

CAR-T cell therapy Kyrmiah was approved in Japan for the treatment of relapsed or refractory (r/r) DLBCL and (r/r) pediatric ALL.

Capmatinib (INC280) was granted the Orphan Drug designation by the FDA for the treatment of non-small cell lung cancer with cMET genomic tumor aberrations.

Sandoz recently resubmitted the application for its proposed biosimilar of Amgen’s AMGN Neulasta (pegfilgrastim) to the FDA, following the complete response letter received in June 2016.

Interim analyses from a phase III study, STRIVE, on gene therapy Zolgensma (AVXS-101) was presented in April at the Muscular Dystrophy Association congress.

Our Take

Novartis’ first-quarter results beat on earnings but missed on sales. While performance of key drugs like Cosentyx, Entresto, Kisqali and Promacta was encouraging, Sandoz continues to face challenging business conditions in the United States.

Novartis’ stock has lost 9.9% in the past six months against the industry's 0.1% growth.

The company is currently restructuring its business in order to become a core drug-focused company, powered by data and digital technologies. The separation of the Alcon business is a step in the right direction, as the business was not performing as per management’s expectations.

Zacks Rank & Stock to Consider

Novartis currently carries a Zacks Rank #5 (Strong Sell).

A better-ranked stock in the large-cap pharma space is GlaxoSmithKline plc GSK, which carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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