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Novartis Reports In-Line Earnings

Zacks Equity Research

Novartis (NVS) reported second quarter 2013 earnings per share of $1.03, down 6% from the year-ago period. Second quarter 2013 core earnings per share came in at $1.30, down 4% from the year-ago period, but in-line with the Zacks Consensus Estimate.

Second quarter revenues came in at $14.5 billion, up 1% year over year. Revenues surpassed the Zacks Consensus Estimate of $14.3 billion.

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

Quarter in Detail

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

The Pharmaceuticals division recorded sales of $8.1 billion in the reported quarter, up 1% driven by strong volume growth which more than offset the impact of generic competition for drugs like Diovan and Zometa.

Key drugs at Novartis such as Gilenya, Afinitor, Tasigna, Galvus, Xolair, Arcapta Neohaler/Onbrez Breezhaler, Seebri Breezhaler and Jakavi contributed 31% to total sales in the second quarter of 2013.

Novartis received EU approval for an additional indication for Lucentis – myopic choroidal neovascularisation. In addition, the US Food and Drug Administration (:FDA) approved Ilaris for systemic juvenile idiopathic arthritis, Exelon Patch for severe Alzheimer’s disease and Simbrinza suspension for glaucoma. Moreover, the FDA granted Breakthrough Therapy designation to serelaxin for acute heart failure.

The Alcon Division recorded revenues of $2.7 billion in the second quarter, up 6% year over year, driven by growth in the Surgical franchise. The growth in the Surgical franchise was backed by the cataract segment due to a rebound in markets and share gains in the US, EU and Japan.

Additionally, the vision care business showed solid growth as strong sales in contact lenses offset soft growth in contact lens care. However, Ophthalmic Pharmaceuticals sales were negatively impacted by generic competition. The FDA approved Simbrinza (glaucoma or ocular hypertension) earlier in Apr 2013 and its launch plans in the US are underway.

Sales from the Sandoz division increased 3% to $2.2 billion, primarily driven by the Fougera acquisition and increases in retail generics and biosimilars sales in Western Europe (excluding Germany) and the emerging markets.

Sales at the Vaccines and Diagnostics division increased 18% from the year-ago quarter to $411 million. The growth in this division was driven by bulk pediatric shipments and seasonal influenza vaccines.

Consumer Health sales at Novartis were up 11% from the prior-year quarter to $1.0 billion driven by strong base business growth along with the re-launch of several products that were adversely impacted by supply issues in 2012.

Sales from emerging markets increased 11% year over year and accounted for 26% of total sales in the second quarter of 2013.

2013 Outlook Upped

Novartis upped its 2013 guidance based on a solid performance in the first half and lower-than-expected generic erosion. The delayed entry of generic Diovan Mono in the US continues to positively impact results at Novartis.

Novartis now expects sales to increase in the low single digits in 2013 as compared to earlier expectation of being in line with 2012. Sales in the Pharmaceutical Division are expected to be in line with 2012 compared to the previous estimate of a low single-digit decline.

Novartis stated that generic competition could impact sales by $2.7 billion in 2013, down from the previous estimate of $3.5 billion.

We expect the delayed entry of Diovan Mono generics to impact 2014 results more than 2013.

Novartis currently carries a Zacks Rank #3 (Hold). Right now, Cadence Pharmaceuticals (CADX), WuXi PharmaTech (Cayman) Inc. (WX) and Jazz Pharmaceuticals (JAZZ) look attractive. All three are Zacks Rank #1 (Strong Buy) stocks.

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