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Novartis (NVS) Misses on Q4 Earnings, Issues Grim 2021 Outlook

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Shares of Swiss pharma giant Novartis AG (NVS - Free Report) were down 2.57% after it reported disappointing fourth-quarter results and warned of challenges ahead in the first half of 2021 due to the ongoing coronavirus pandemic.

Fourth-quarter 2020 core earnings (excluding one-time charges) of $1.34 per share missed the Zacks Consensus Estimate of $1.38 but was up from $1.32 reported in the year-ago quarter.

Revenues of $12.8 billion missed the Zacks Consensus Estimate of $13 billion as the outbreak of COVID-19 negatively impacted demand. Particularly, the dermatology, ophthalmology and Sandoz retail businesses were adversely affected. Sales were up 3% from the year-ago quarter. 

The stock has gained 2.4% in the past year compared with the industry’s growth of 9.8%. 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 $10.2 billion, up 1% year over year. Within this segment, the Pharmaceuticals business unit grew 2%, driven by strong performance of Entresto, Cosentyx and Zolgensma. Growth was partly offset by declines in Established Medicines and mature ophthalmology brands. The COVID-19 pandemic continued to negatively impact dermatology and ophthalmology businesses.

Cosentyx sales increased 13% to $1.1 billion. Entresto sales grew 35 % to $716 million owing to strong growth with increased patient share across markets, driven by elevated demand as the essential first-choice therapy for rEF heart failure. Increasing contribution from Zolgensma (gene therapy for spinal muscular atrophy) also boosted this business unit, as sales jumped 33% to $254 million.

Oncology business unit sales were up 1% as strong performance of Kisqali, Promacta/Revolade, Jakavi, Tafinlar + Mekinist, Kymriah and Adakveo was offset by generic competition for Afinitor (down 30%) and Exjade (down 35%). Kisqali sales came in at $184 million, up 18% year over year. Promacta sales came in at $471 million, up 23%. Jakavi sales came in at $376 million, up 24%, while sales of Tafinlar + Mekinist came in at $408 million, up 13%.

Sales at the Sandoz division were $2.5 billion, flat year over year. Nevertheless, biopharmaceutical sales grew 16%, driven by continued strong double-digit growth in Europe.  The Anti-Infectives segment was affected by a weaker cough and cold season, likely due to COVID-19.

2020 Results

Sales came in at $48.7 billion, up 3%, driven by Entresto, Zolgensma and Cosentyx, but missed the Zacks Consensus Estimate of $49.3 billion. Core EPS of $5.78 missed the Zacks Consensus Estimate of $5.80. 

Guidance for 2021

The company expects net sales in 2021 to grow in low to mid-single digits. Innovative Medicines revenues are projected to grow in mid-single digits. Revenues from Sandoz are expected to grow broadly in line with the prior-year level.  Novartis assumes business to return to normalcy by mid-2021.

Key Pipeline Updates

Leqvio (inclisiran) was approved in Europe for the treatment of adults with hypercholesterolemia or mixed dyslipidemia. However, the company received a CRL from the FDA due to unresolved facility inspection-related conditions at a third-party manufacturing facility in Europe. The FDA has not raised any concerns related to the efficacy or safety of inclisiran. Novartis plans to submit a response to the CRL by the second or third quarter of 2021.

The European Commission also approved Adakveo for the prevention of recurrent vaso-occlusive crises (VOCs), or pain crises, in patients with sickle cell disease.

Earlier this month, the company in-licensed a late-stage anti-PD1 antibody, tislelizumab, from BeiGene (BGNE - Free Report) for monotherapy and potential proprietary combinations. Novartis secured development and commercialization rights in North America, Europe and Japan. Tislelizumab is already approved for patients with classical Hodgkin’s lymphoma and metastatic urothelial carcinoma in China and has 15 registration-enabling clinical trials underway in non-small cell lung cancer and other solid tumors. 

Our Take

Novartis’ fourth-quarter results were weak as Sandoz retail sales, dermatology and ophthalmology continue to be negatively impacted by ongoing disruptions in hospitals.

Novartis AG Price, Consensus and EPS Surprise

 

Novartis AG Price, Consensus and EPS Surprise

Novartis AG price-consensus-eps-surprise-chart | Novartis AG Quote

The outlook for 2021 was grim too as the company stated that the healthcare systems did not return fully to the pre-pandemic levels in the back half of 2020. The first half of 2021 will continue to see challenges for certain therapeutic areas such as dermatology and ophthalmology, as well as Sandoz retail. Moreover, some of the new launches will face a delay, thereby affecting the incremental contribution.

Earlier, the company and partner Incyte (INCY - Free Report) announced that the late-stage study on ruxolitinib in COVID-19 patients was not successful.

Nevertheless, Entresto maintains momentum on increased patient share across markets.

Zacks Rank

Novartis currently carries a Zacks Rank #3 (Hold). A better-ranked large-cap pharma stock is Merck (MRK - Free Report) , which carries a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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