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Novartis (NVS) Q1 Earnings & Sales Miss Estimates on COVID-19 Woes

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Swiss pharma giant Novartis AG (NVS - Free Report) reported disappointing first-quarter results amid the ongoing coronavirus pandemic.

First-quarter 2021 core earnings (excluding one-time charges) of $1.52 per share missed the Zacks Consensus Estimate of $1.57 and was down from $1.56 reported in the year-ago quarter.

Revenues of $12.41 billion missed the Zacks Consensus Estimate of $12.46 billion as the outbreak of COVID-19 negatively impacted demand. Particularly, the dermatology, ophthalmology, Sandoz Retail and Anti-Infectives businesses, and the breast cancer portfolio were adversely impacted. Sales were up 1% from the year-ago quarter. 

The stock has lost 7% in the year so far against the industry’s growth of 3.1%.

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 $10.1 billion, flat year over year. Within this segment, the Pharmaceuticals business unit was flat year over year, driven by the strong performance of Entresto, Cosentyx and Zolgensma. Growth was partly offset by declines in Established Medicines and mature ophthalmology brands.

Cosentyx sales increased 11% to $1.1 billion. Entresto sales grew 34% to $789 million owing to strong growth with increased patient share across markets, driven by elevated demand for the drug as the essential first-choice therapy for heart failure. Increasing contribution from Zolgensma (gene therapy for spinal muscular atrophy) also boosted this business unit, as sales jumped 81% to $319 million.

Oncology business unit sales were up 1% as the strong performance of Kymriah (+55% to $151 million), Promacta/Revolade (+13% to $463 million), Kisqali (+19% to $195 million) and Jakavi partly offset the decline in sales due to generic competition for Glivec, Afinitor and Exjade.  Sales of Promacta/Revolade were driven by increased use in chronic immune thrombocytopenia and as first-line treatment for severe aplastic anemia in the United States.  Kisqali sales were boosted by solid growth in Europe and Emerging Growth Markets, benefiting from the ongoing impact of positive overall survival data. Jakavi sales increased 8% to $363 million as growth in most markets was driven by strong demand in the myelofibrosis and polycythemia vera indications. Tafinlar + Mekinist sales rose 4%, driven by continued demand in adjuvant melanoma and non-small-cell lung carcinoma (NSCLC).

Sales at the Sandoz division were $2.3 billion, down 9% year over year. Nevertheless, biopharmaceutical sales grew 7%, driven by continued growth in Europe.  The Anti-Infectives segment was affected by a weaker cough and cold season, likely due to COVID-19.

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 decline low to mid-single digit (revised from broadly in line). Novartis expects Sandoz’s performance to stabilize in the near term, after a challenging quarter.

Key Pipeline Updates

The FDA approved an expanded indication for Entresto in chronic heart failure patients with left ventricular ejection fraction (LVEF) below normal. This, in turn, makes Entresto the first therapy indicated for heart failure with reduced ejection fraction (HFrEF) and the majority of patients diagnosed with heart failure with preserved ejection fraction (HFpEF).

Kesimpta was approved in Europe for the treatment of relapsing forms of multiple sclerosis (RMS).

The phase III CANOPY-2 study evaluating canakinumab, in combination with the chemotherapy agent docetaxel, did not meet its primary endpoint of overall survival in patients with advanced or metastatic non-small cell lung cancer whose cancer progressed while on or after previous treatments.

Novartis successfully completed the in-licensing of tislelizumab from BeiGene (BGNE - Free Report) for development and commercialization in North America, Europe and Japan.

Novartis collaborated with Molecular Partners to develop, manufacture and commercialize two antiviral DARPin candidates, ensovibep (MP0420) and MP0423, which are designed to target multiple different sites on the SARS-CoV-2 virus simultaneously for enhanced antiviral effects and potential use as both prophylactics and treatments.

Novartis also signed an initial agreement to manufacture the mRNA and bulk drug product for the vaccine candidate, CVnCoV, from CureVac (CVAC - Free Report) with plans to produce up to 50 million doses in 2021 and up to a further 200 million doses in 2022.

Our Take

Novartis’ first-quarter results were weak as COVID-19 negatively impacted demand, particularly for dermatology, ophthalmology, the breast cancer portfolio, Sandoz Retail and Anti-Infectives.

Novartis AG Price, Consensus and EPS Surprise

Earlier, the company had stated that 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.

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

Zacks Rank

Novartis currently carries a Zacks Rank #4 (Sell).

A better-ranked stock in the healthcare sector is Bristol-Myers (BMY - 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.

Bristol-Myers’ earnings estimates are up 9 cents for 2021.

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