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Novartis (NVS) Q3 Earnings & Sales Beat Estimates, Up Y/Y

Swiss pharma Novartis AG’s NVS earnings and sales beat estimates in the third quarter of 2019.  The company also updated its sales guidance and expects annual sales toward the high end of its previous forecast.

Third-quarter 2019 core earnings (excluding one-time charges) of $1.41 per share beat the Zacks Consensus Estimate of $1.31 and increased from $1.22 reported in the year-ago quarter.

Revenues rose 10% year over year to $12.2 billion and beat the Zacks Consensus Estimate of $11.6 billion, driven by Cosentyx, Entresto, Zolgensma and the Xiidra acquisition.

The stock has inched up 0.9% in the year so far against the industry’s decline of 0.3%.

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 $9.7 billion, up 15% year over year. Within this segment, the Pharmaceuticals business unit grew 15%, as psoriasis drug Cosentyx continues to gain traction. Cosentyx sales increased 27% to $937 million, driven by strong demand in the United States. Entresto sales grew 61% to $430 million, driven by increased worldwide uptake in hospital and ambulatory settings. The incremental contribution from the first full quarter of sales from Zolgensma (gene therapy for pediatric patients with spinal muscular atrophy) and Xiidra also boosted this business unit.

The oncology unit sales increased 14%, driven by the solid performance of Promacta/Revolade, Tafinlar + Mekinist and Kisqali, and contribution from launches of Lutathera, Kymriah and Piqray (approved for breast cancer). Kisqali sales surged 76%, driven by the ongoing uptake in the United States and Europe. Promacta sales jumped 31% on increased use in chronic immune thrombocytopenia and its uptake as first-line treatment for severe aplastic anemia in the United States and Japan.

Sales at the Sandoz division were $2.5 billion, up 5% as volume growth offset price erosion in the United States. Biopharmaceuticals sales grew 27%, mainly driven by double-digit growth in Rixathon, Erelzi and Hyrimoz. Novartis expects the previously-announced divestment of the Sandoz US oral solids and dermatology portfolio to be completed in the coming months, pending regulatory approval.

The Alcon business was spun-off as a separate public company on Apr 9 and hence results of that business are included in discontinued operations.

Guidance Updated

The company expects net sales in 2019 to grow in high-single digits now as compared to the previous guidance of mid-to-high-single-digit growth. Innovative Medicines revenues are projected to see high-single to low-double-digit growth (previous guidance: mid-to-high-single digit). Revenues from Sandoz are expected to grow in low-single digits (previous guidance: broadly in-line to up low-single digits).

Pipeline Update

The pipeline progress during the third quarter was encouraging.

The FDA approved Entresto for the treatment of symptomatic heart failure with systemic left ventricular systolic dysfunction in children aged one year or above. Gilenya was approved in China for relapsing forms of multiple sclerosis in adults and children aged 10 years or above. The FDA granted Breakthrough Therapy designation to capmatinib (INC280) as a first-line treatment for patients with metastatic MET exon14 skipping-mutated non-small cell lung cancer. Novartis plans to file a regulatory application with the FDA in the fourth quarter.

Subsequent to the quarter, Novartis obtained FDA approval for Beovu for the treatment of wet age-related macular degeneration and the drug was launched in the United States.

Our Take

Novartis’ third-quarter results beat on earnings and sales, driven by the solid performance of key drugs like Cosentyx and Entresto, contribution from Zolgensma, and the Xiidra acquisition. The increase in guidance was encouraging as well.

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. Beovu’s potential to treat patients with quarterly injections is a major positive and should enable it to capture market share.

Zacks Rank & A Key Pick

Novartis currently carries a Zacks Rank #3 (Hold).

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

Glaxo’s earnings per share estimates have moved up from $2.89 to $2.97 for 2019 in the past 60 days.

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