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Novartis' (NVS) Q2 Earnings Surpass Estimates, Sales Miss
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Swiss pharma Novartis AG’s (NVS - Free Report) second-quarter 2020 results were hit by the coronavirus outbreak as sales missed expectations while earnings beat the same. Moreover, the company tightened its outlook for 2020 to account for the adverse impact of the pandemic.
Second-quarter 2020 core earnings (excluding one-time charges) of $1.35 per share easily beat the Zacks Consensus Estimate of $1.29 and increased from $1.34 reported in the year-ago quarter.
However, revenues were down 4% year over year to $11.3 billion as the impact of forward purchasing in the first quarter was reversed in the second quarter. Revenues missed the Zacks Consensus Estimate of $11.6 billion. The outbreak of COVID-19 negatively impacted demand. Particularly, Lucentis and mature ophthalmology ($0.3 billion), new patient starts in dermatology, and Sandoz retail were adversely impacted. Sales were mostly affected by lower new patient starts and a significant reduction in patient visits to physicians.
The stock has lost 4.8% in the year so far against the industry’s growth of 4.5%.
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 $9.2 billion, up 1% year over year. Within this segment, the Pharmaceuticals business unit grew 1% as the uptake of Zolgensma and continued momentum in Entresto and Cosentyx were mostly offset by the negative impact of the pandemic, particularly in ophthalmology and new patient starts in dermatology.
Cosentyx sales increased 12% to $944 million, driven by strong demand for all indications and gain of additional market share in the United States. However, growth was impacted by COVID-19 related disruptions in dermatology and rheumatology practices. Entresto sales grew 40% to $580 million, driven by increased market share. Increasing contribution from Zolgensma (gene therapy for spinal muscular atrophy) also boosted this business unit.
Oncology BU grew 1% as growth in Promacta/Revolade, Kymriah, Kisqali and Tafinlar + Mekinist as well as the launch uptake of Piqray was mostly offset by generic competition for Afinitor and Exjade and the negative impact of the COVID-19 pandemic, particularly in radioligand therapy.
Sales at the Sandoz division were $2.2 billion, down 9% due to COVID-19 impacts. Reversal of forward purchasing in the first quarter, lower retail demand and some contract discontinuations in the United States affected results. Nevertheless, biopharmaceutical sales grew 19%, driven by continued strong double-digit growth in Europe and the United States.
Guidance for 2020 Tightened
The company expects net sales in 2020 to grow in mid-single digits (previous guidance: mid to high-single digits). Innovative Medicines revenues are projected to grow in mid-single digits (previous guidance: mid to high-single digits). Revenues from Sandoz are expected to grow in low-single digits (same as before).
COVID-19 Update
Novartis and partner Incyte (INCY - Free Report) initiated a phase III study to evaluate the use of Jakavi in combination with standard of care (SoC) compared with SoC alone for COVID-19 infection. A phase III study on Ilaris (canakinumab) in patients with pneumonia as a result of SARS-CoV-2 infection is also ongoing. Data readouts from these studies are expected in the second half of 2020.
Key Pipeline Updates
Novartis received FDA and EMA approval for Cosentyx for the treatment of patients with non-radiographic axSpA, the fourth indication after moderate to severe plaque psoriasis, psoriatic arthritis and ankylosing spondylitis. Cosentyx also received a positive CHMP opinion for the treatment of pediatric psoriasis.
Meanwhile, the FDA approved a label update of Beovu to include additional safety information. The update includes characterization of adverse events — retinal vasculitis and retinal vascular occlusion — as part of the spectrum of intraocular inflammation observed in the HAWK and HARRIER trials and noted in the original prescribing information.
The FDA extended its review of the sBLA for ofatumumab, a self-administered, targeted B-cell therapy for patients with relapsing multiple sclerosis. Regulatory action is now expected in September 2020.
Our Take
Novartis’ second-quarter results were hit by the coronavirus pandemic as sales fell short of expectations. Nevertheless, Cosentyx and Entresto gained market share. We note that Cosentyx maintains momentum for the company on recent label expansions despite stiff competition from AbbVie’s (ABBV - Free Report) Humira, and Taltz and Johnson & Johnson’s (JNJ - Free Report) Tremfya. However, the FDA recently approved a label update for ophthalmology drug, Beovu, to include additional safety information regarding retinal vasculitis and retinal vascular occlusion. The growth trajectory that Beovu takes up following this label update is yet to be seen.
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
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Novartis' (NVS) Q2 Earnings Surpass Estimates, Sales Miss
Swiss pharma Novartis AG’s (NVS - Free Report) second-quarter 2020 results were hit by the coronavirus outbreak as sales missed expectations while earnings beat the same. Moreover, the company tightened its outlook for 2020 to account for the adverse impact of the pandemic.
Second-quarter 2020 core earnings (excluding one-time charges) of $1.35 per share easily beat the Zacks Consensus Estimate of $1.29 and increased from $1.34 reported in the year-ago quarter.
However, revenues were down 4% year over year to $11.3 billion as the impact of forward purchasing in the first quarter was reversed in the second quarter. Revenues missed the Zacks Consensus Estimate of $11.6 billion. The outbreak of COVID-19 negatively impacted demand. Particularly, Lucentis and mature ophthalmology ($0.3 billion), new patient starts in dermatology, and Sandoz retail were adversely impacted. Sales were mostly affected by lower new patient starts and a significant reduction in patient visits to physicians.
The stock has lost 4.8% in the year so far against the industry’s growth of 4.5%.
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 $9.2 billion, up 1% year over year. Within this segment, the Pharmaceuticals business unit grew 1% as the uptake of Zolgensma and continued momentum in Entresto and Cosentyx were mostly offset by the negative impact of the pandemic, particularly in ophthalmology and new patient starts in dermatology.
Cosentyx sales increased 12% to $944 million, driven by strong demand for all indications and gain of additional market share in the United States. However, growth was impacted by COVID-19 related disruptions in dermatology and rheumatology practices. Entresto sales grew 40% to $580 million, driven by increased market share. Increasing contribution from Zolgensma (gene therapy for spinal muscular atrophy) also boosted this business unit.
Oncology BU grew 1% as growth in Promacta/Revolade, Kymriah, Kisqali and Tafinlar + Mekinist as well as the launch uptake of Piqray was mostly offset by generic competition for Afinitor and Exjade and the negative impact of the COVID-19 pandemic, particularly in radioligand therapy.
Sales at the Sandoz division were $2.2 billion, down 9% due to COVID-19 impacts. Reversal of forward purchasing in the first quarter, lower retail demand and some contract discontinuations in the United States affected results. Nevertheless, biopharmaceutical sales grew 19%, driven by continued strong double-digit growth in Europe and the United States.
Guidance for 2020 Tightened
The company expects net sales in 2020 to grow in mid-single digits (previous guidance: mid to high-single digits). Innovative Medicines revenues are projected to grow in mid-single digits (previous guidance: mid to high-single digits). Revenues from Sandoz are expected to grow in low-single digits (same as before).
COVID-19 Update
Novartis and partner Incyte (INCY - Free Report) initiated a phase III study to evaluate the use of Jakavi in combination with standard of care (SoC) compared with SoC alone for COVID-19 infection. A phase III study on Ilaris (canakinumab) in patients with pneumonia as a result of SARS-CoV-2 infection is also ongoing. Data readouts from these studies are expected in the second half of 2020.
Key Pipeline Updates
Novartis received FDA and EMA approval for Cosentyx for the treatment of patients with non-radiographic axSpA, the fourth indication after moderate to severe plaque psoriasis, psoriatic arthritis and ankylosing spondylitis. Cosentyx also received a positive CHMP opinion for the treatment of pediatric psoriasis.
Meanwhile, the FDA approved a label update of Beovu to include additional safety information. The update includes characterization of adverse events — retinal vasculitis and retinal vascular occlusion — as part of the spectrum of intraocular inflammation observed in the HAWK and HARRIER trials and noted in the original prescribing information.
The FDA extended its review of the sBLA for ofatumumab, a self-administered, targeted B-cell therapy for patients with relapsing multiple sclerosis. Regulatory action is now expected in September 2020.
Our Take
Novartis’ second-quarter results were hit by the coronavirus pandemic as sales fell short of expectations. Nevertheless, Cosentyx and Entresto gained market share. We note that Cosentyx maintains momentum for the company on recent label expansions despite stiff competition from AbbVie’s (ABBV - Free Report) Humira, and Taltz and Johnson & Johnson’s (JNJ - Free Report) Tremfya. However, the FDA recently approved a label update for ophthalmology drug, Beovu, to include additional safety information regarding retinal vasculitis and retinal vascular occlusion. The growth trajectory that Beovu takes up following this label update is yet to be seen.
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.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
Click here for the 6 trades >>