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Novartis Q2 Earnings Miss, Sales Top on Cosentyx, Entresto

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Swiss pharma giant Novartis AG (NVS - Free Report) reported results for second-quarter 2018, wherein revenues beat estimate, driven by strong performance of Cosentyx and Entresto.  However, earnings fell short.

Second-quarter 2018 adjusted earnings of $1.26 per share (excluding the one-time gain) missed the Zacks Consensus Estimate of $1.27 but were up from $1.22 recorded in the year-ago quarter.

Novartis AG Price and Consensus

Novartis AG Price and Consensus | Novartis AG Quote

Revenues increased 7% to $13.1 billion, as volume growth driven by Cosentyx and Entresto was partially offset by the negative impact of generic competition and pricing. Revenues also beat the Zacks Consensus Estimate of $12.7 billion.

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

Quarter in Detail

Novartis operates under three segments: Innovative Medicines (Pharmaceuticals), Alcon (Ophthalmology unit) and Sandoz (Generics).

The Innovative Medicines division recorded sales of $8.9 billion, up 8% driven by a 6% growth in pharmaceuticals and 10% growth in oncology.  Generic competition impacted sales at the segment, primarily due to the entry of generics for Gleevec, in the United States and Europe, and certain ophthalmology products. Pricing too impacted sales.

Psoriasis Cosentyx continues to gain traction. Cosentyx sales increased to $701 million, up 40% driven by strong growth in all indications, in the United States and EU. Entresto’s sales more than doubled to $239 million, driven by increased worldwide uptake.

Oncology franchise grew 10%, driven by Promacta/Revolade, Tafinlar plus Mekinist, Jakavi and uptake of Kisqali and Kymriah, and contribution from the Advanced Accelerator Applications acquisition. Kisqali’s uptake in the United States is encouraging and the drug will be launched in some EU countries as well.

Sales at the Sandoz division were $2.5 billion, down 2% due to price erosion in the Unites States. Sales in the United States declined due to competitive pressure. Biopharmaceuticals sales grew 34%, mainly driven by launches of Rixathon, the biosimilar version of Rituxan (rituximab); Erelzi, the biosimilar of Enbrel in the EU; and Zarxio (filgrastim) in the United States.

Sales at the Alcon division were $1.8 billion, up 5%. Surgical sales increased 8%, driven by implantables, which include intraocular lenses (IOLs) and CyPass Micro Stent, and continued consumables growth.  Vision Care sales were up 1%, as double digit growth of Dailies Total1 was mostly offset by declines in both weekly/monthly lenses and contact lens care. 

Novartis recently announced that it intends to spin-off its ophthalmology division, Alcon, into a separately-traded standalone company, in order to grow as a medicines company solely. Nevertheless, Alcon sales are estimated to grow in low to mid-single digits. The company is all set to exit its antibacterial and antiviral research program, and reduce the headcount at Emeryville, CA, campus of Novartis Institutes for BioMedical Research (NIBR) by about 140.

The company also announced a share buyback of up to $5 billion, which will be completed by the end of 2019.

2018 Outlook Updated

Novartis reiterated total net sales in 2018 to grow in low to mid-single digit. Innovative Medicines is projected to grow in mid-single digit. However, revenues from Sandoz are now expected to decline in low-single digit, while Alcon sales are estimated to grow in mid-single digit.

Pipeline Update

Novartis’ pipeline candidates’ progress has been encouraging in the year so far.  The FDA has approved a label expansion of CAR T therapy, Kymriah for the treatment of adult patients with relapsed or refractory (r/r) large B-cell lymphoma after two or more lines of systemic therapy, including diffuse large B-cell lymphoma (DLBCL), high grade B-cell lymphoma and DLBCL arising from follicular lymphoma. Kymriah also received positive CHMP opinions for r/r DLBCL and pediatric B-cell acute lymphoblastic leukemia (ALL) in Europe.

Novartis and partner Amgen (AMGN - Free Report) also received the FDA approval for migraine drug, Aimovig, in adults. Tafinlar plus Mekinist was approved by the FDA for adjuvant treatment of BRAF V600-mutant melanoma. The combination was also approved by the FDA for the treatment of patients with locally advanced or metastatic anaplastic thyroid cancer with BRAF V600E mutation.

Multiple Sclerosis (MS) drug Gilenya was approved by the FDA as the first disease-modifying therapy for pediatric relapsing multiple sclerosis.  Cosentyx also obtained the FDA approval on the PsA efficacy labeling supplement to include radiographic response data from the FUTURE 5 study.

Sandoz continues to progress with its generics and biosimilars pipeline. The division received approval for Zessly, a biosimilar of Remicade, in Europe. A proposed biosimilar of AbbVie’s (ABBV) Humira received a positive opinion from the CHMP and a decision is expected in August. However, the FDA issued a complete response letter (CRL) for the proposed biosimilar of Rituxan.

Our Take

Novartis’ beat sales estimate in the second-quarter on strong performance of Cosentyx and Entresto.  Both the drugs continue to perform well.  The label expansion of oncology drugs also boost the top line.

Novartis’ stock has declined 0.6% in the year so far compared with the industry's 1.4% growth.

 

Novartis has restructured its business and plans to focus on becoming a core drug-focused company, powered by data and digital technologies. Novartis is looking to solidify its presence in the gene therapy space. It acquired U.S.-based clinical stage gene therapy company, AveXis, Inc.

Novartis had a successful pre-BLA meeting with the FDA for AVXS-101 for the treatment of spinal muscular atrophy and a regulatory submission is expected in the second half of 2018. Earlier in 2018, Novartis announced a licensing agreement with Spark Therapeutics covering development, registration and commercialization rights to voretigene neparvovec, outside the United States. Novartis also divested stake in the OTC joint venture with Glaxo (GSK - Free Report) for $13 billion.

However, the generic division, Sandoz continues to face pricing pressure. The division also suffered a blow when the FDA issued a CRL to its generic Advair Diskus.

Zacks Rank

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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