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Novartis (NVS) Q1 Earnings and Revenues Surpass Estimates

Zacks Equity Research

Swiss pharma Novartis AG NVS reported encouraging results for the first quarter of 2020, beating on both sales and earnings. Forward purchasing due to COVID-19 also boosted performance. Moreover, the company maintained its outlook for 2020 even amid uncertainties related to the coronavirus pandemic.

First-quarter 2020 core earnings (excluding one-time charges) of $1.55 per share easily beat the Zacks Consensus Estimate of $1.37 and increased from $1.21 reported in the year-ago quarter.

Revenues rose 11% year over year to $12.3 billion, driven by Entresto, Zolgensma, Cosentyx, Kisqali and Piqray. Revenues beat the Zacks Consensus Estimate of $12.15 billion. Excluding COVID-19-related forward purchases, sales grew approximately 9%.

The stock has lost 5.4% in the year so far against the industry’s growth of 0.1%.

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 and Sandoz (generics).

The Innovative Medicines division recorded sales of $9.8 billion, up 13% year over year. Within this segment, the Pharmaceuticals business unit grew 14%, driven by continued momentum in Entresto and Cosentyx and the uptake of Zolgensma.

Psoriasis drug, Cosentyx, continues to gain traction. Cosentyx sales increased 19% to $930 million, driven by strong demand in the United States. Entresto sales grew 62% to $569 million, driven by demand growth across geographies. Increasing contribution from Zolgensma (gene therapy for pediatric patients with spinal muscular atrophy) also boosted this business unit.

The Oncology business unit grew 12%, driven by continued momentum in Promacta/Revolade, Tafinlar + Mekinist and Kisqali as well as the launch uptake of Piqray. Kisqali sales surged 82%, driven by strong double-digit growth owing to higher demand in all geographies. Kymriah grew strongly in Europe and the United States.

This growth was partially offset by generic competition for Afinitor, Exjade, Travatan and Exforge.

Sales at the Sandoz division were $2.5 billion, up 11%, driven by volume growth including COVID-19-related forward purchasing, partly offset by price erosion. Biopharmaceuticals sales grew 31%, driven by continued strong double-digit growth in Europe. Novartis has decided to retain Sandoz US generic oral solids and dermatology businesses, after terminating its mutual agreement with Aurobindo.

Guidance for 2020 Reiterated

The company expects net sales in 2020 to grow in mid to high-single digits. Innovative Medicines revenues are projected to grow in mid to high-single digits. Revenues from Sandoz are expected to grow in low-single digits.

COVID-19 Update

The pipeline progress during the quarter was encouraging. Novartis initiated a phase III clinical trial in collaboration with Incyte INCY to evaluate the use of Jakavi in combination with standard of care (SoC) compared to SoC alone for COVID-19 infection and a phase III study on Ilaris in patients with pneumonia as a result of SARS-CoV-2 infection.

Additionally, Novartis announced a phase III study on hydroxychloroquine, alone and in combination with azithromycin, for the treatment of hospitalized patients with COVID-19 disease. Under an expedited managed access program, Novartis has granted requests and provided Jakavi and Ilaris. Requests for investigator-initiated trials have also been granted for COVID-19-related clinical studies of Gleevec, Cosentyx, hydroxychloroquine and Diovan. The company has committed to donate up to 130 million doses of generic hydroxychloroquine to support the global COVID-19 pandemic response.

Our Take

Novartis’ first-quarter results were strong, driven by the solid performance of key drugs like Cosentyx and Entresto, and contribution from gene therapy, Zolgensma. COVID-19 related forward purchasing also boosted performance.

New launches like Piqray and Beovu should further boost the company’s performance in the upcoming quarters. In particular, strong uptake is expected from Beovu as it is the first FDA-approved anti-VEGF to offer greater fluid resolution as compared to Regeneron REGN and Bayer’s BAYRY market-leading drug, Eylea.

Novartis currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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