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Novartis (NVS) Q3 Earnings Beat, Sandoz Under Strategic Review

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Swiss pharma giant Novartis AG (NVS - Free Report) reported mixed third-quarter 2021 results as the weak Sandoz business continues to affect performance.

Core earnings (excluding one-time charges) of $1.71 per share beat the Zacks Consensus Estimate of $1.65 and increased from $1.52 reported in the year-ago quarter.

Revenues of $13 billion marginally missed the Zacks Consensus Estimate of $13.1 billion.  Sales were up 6% from the year-ago quarter, driven by momentum in key brands including Cosentyx, Entresto, Zolgensma, the oncology portfolio, and the launch of Kesimpta, which continues to accelerate.

The stock has lost 9.5% in the year so far against the industry’s growth of 15%.

 

Zacks Investment ResearchImage Source: Zacks Investment Research

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 $10.6 billion, up 7% year over year. Within this segment, the Pharmaceuticals business unit grew 8%, driven by the strong growth of Entresto, Cosentyx, Kesimpta, and Zolgensma.

Cosentyx sales increased 22% to $1.2 billion, driven by sustained underlying demand across indications in the United States and Europe, and strong volume growth in China. Entresto sales surged 44% to $924 million, owing to strong growth with increased patient share across markets. Increasing contribution from Zolgensma (gene therapy for spinal muscular atrophy) also boosted this business unit, as sales jumped 28% to $375 million. Kesimpta sales came in at $109 million.

Oncology business unit sales were up 5%, fueled by the strong performance of Promacta/Revolade (up 18% to $522 million), Jakavi (up 26% to $426 million), Kisqali (up 27% to $232 million), Tasigna (up 7% to $514 million) and Kymriah (up 20% to $146 million).

Sales in the Sandoz division were $2.4 billion, down 2% year over year as sales in Europe grew 2% while that in the United States fell 20%. Global sales of Biopharmaceuticals grew 5%.  Volume growth in Biopharmaceutical was partly offset by softer Retail Generics demand, including a weak cough and cold season.

Guidance for 2021

The company expects net sales for 2021 to grow in the low- to mid-single digits. Innovative Medicines revenues are projected to grow in the mid-single digits. Revenues from Sandoz are expected to decline in the low- to mid-single digit range. The company increased its peak sales guidance for Cosentyx and Entresto to at least $7.0 billion and at least $5.0 billion, respectively. 

Management stated that the Sandoz business is beginning to normalize from the impact of COVID-19. However, some parts of the business continue to be affected, particularly the Retail Generics and third-party Anti-Infectives businesses.

Key Pipeline Updates

Cosentyx was approved in China and Japan for the treatment of moderate-to-severe plaque psoriasis in pediatric patients who are candidates for systemic therapy or phototherapy.

Novartis resubmitted a new drug application (NDA) for inclisiran to the FDA and the agency set a target action date of Jan 1, 2022.

Another candidate, 177Lu-PSMA-617, was granted priority review for metastatic castration-resistant prostate cancer by the FDA.

The biologics license application (BLA) for tislelizumab was accepted by the FDA for the treatment of unresectable recurrent locally advanced or metastatic esophageal squamous cell carcinoma in patients who had received prior systemic therapy.  The candidate was in-licensed from BeiGene (BGNE - Free Report) .

The phase III CANOPY-1 study on canakinumab did not meet its primary endpoints in non-small cell lung cancer (NSCLC).

Our Take

Novartis’ third-quarter results were mixed. Most of the key brands continue to maintain momentum and the pipeline progress is also impressive.

Novartis AG Price, Consensus and EPS Surprise

 

Novartis AG Price, Consensus and EPS Surprise

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

However, the Sandoz business continues to be affected by pricing pressures. Hence, management has commenced a strategic review of Sandoz and might separate the business. The business has been struggling for quite some time now despite Novartis’ efforts to revive it.  The generic industry in general has been facing tough business conditions.

Zacks Rank

Novartis currently carries a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the healthcare sector are Regeneron Pharmaceuticals (REGN - Free Report) and Exelixis (EXEL - Free Report) , both carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Regeneron’s earnings estimates are up $8.21 for 2021 in the last 60 days. The stock is up 19.3% in the year so far.

Exelixis’ earnings estimates are up 40 cents for 2021 in the last 90 days. The stock is up 7.8% in the year so far.