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Novartis (NVS) Beats on Q1 Earnings, Sandoz Posts Growth

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Novartis AG (NVS - Free Report) reported mixed first-quarter 2022 results. The Sandoz business returned to growth and new drugs continued to boost performance.

Core earnings (excluding one-time charges) of $1.46 per share beat the Zacks Consensus Estimate of $1.44 but were down from $1.52 reported in the year-ago quarter.

However, revenues of $12.5 billion missed the Zacks Consensus Estimate of $12.8 billion. Nevertheless, sales were up 1% from the year-ago quarter, driven by momentum in key brands including Cosentyx, Entresto, Zolgensma and Kesimpta.

Shares of Novartis have gained 3.4% so far this year compared with the industry’s growth of 2.7%.

Zacks Investment Research
Image Source: Zacks Investment Research

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

Quarter in Detail

Swiss pharma giant Novartis operates under two segments — Innovative Medicines and Sandoz (generics).

The Innovative Medicines division recorded sales of $10.2 billion, up 4% year over year. Within this segment, the Pharmaceuticals business unit grew 9% to $6.7 billion, driven by the strong growth of Entresto.

Cosentyx sales increased 12% from the prior-year quarter to $1.2 billion, driven by demand-led volume growth in the United States and Europe.  Entresto sales surged 42% from the year-ago quarter to $1.1 billion due to sustained strong growth with increased patient share across most markets, driven by demand in heart failure.  Increasing contribution from Zolgensma (gene therapy for spinal muscular atrophy) also boosted this business unit, with a sales surge of 18% from the prior-year period to $363 million. Kesimpta sales came in at $195 million. Xolair sales totaled $368 million, up 17%.

The Oncology business unit sales were down 3% from the year-ago period to $3.5 billion as strong performance of  Kisqali (up 28% to $239 million), Jakavi (up 14% to $389 million), Promacta/Revolade (up 9% to $491 million) and Tafinlar + Mekinist (up 7% to $403 million) were more than offset by generic competition, mainly for Afinitor/Votubia (down 43% to $138 million) Gleevec/Glivec (down 25% to $198 million), Exjade/Jadenu (down 24% to $110 million) and Sandostatin (down 9% to $320 million).

Sales in the Sandoz division were $2.4 billion, up 8% year over year, benefiting from a lower prior-year comparison as business dynamics continued to normalize from COVID-19 impacts. Sales in Europe grew 9%, offset by a 2% decline in the United States. Global sales of Biopharmaceuticals grew 7%.

2022 Guidance

Novartis expects net sales for 2022 to grow in the mid-single digits. While Innovative Medicines revenues are projected to grow in the mid-single digits, revenues from Sandoz are expected to remain broadly in line with the prior-year level.

Key Pipeline Updates

During the quarter under review, Novartis received new approval for several drugs across multiple indications.

The FDA approved Pluvicto (lutetium Lu 177 vipivotide tetraxetan) as the first targeted radioligand therapy for the treatment of progressive, PSMA positive metastatic castration-resistant prostate cancer. The regulatory body also granted accelerated approval to Vijoice (alpelisib) for the treatment of adult and pediatric patients with severe manifestations of PIK3CA-Related Overgrowth Spectrum (PROS).

Ophthalmology drug Beovu was approved in the EU for the treatment of visual impairment due to diabetic macular edema.

Other Updates

While Novartis is still evaluating whether to retain or sell its Sandoz business, it expects to provide an update on the same by the end of this year.

In April, Novartis announced a new organizational structure to accelerate growth, strengthen its pipeline and increase productivity.  The changes are expected to generate SG&A savings of at least $1 billion, to be fully embedded by 2024.

Novartis AG Price, Consensus and EPS Surprise

Novartis AG Price, Consensus and EPS Surprise

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

Our Take    

Novartis’ performance in the first quarter was good as the lagging Sandoz business returned to growth and cardiovascular drug Entresto maintained its stellar performance.  Drugs like Cosentyx, Entresto, Kesimpta, Zolgensma, Kisqali and Leqvio should continue to fuel growth and offset the impact of generic competition.

Meanwhile, Novartis is looking for strategic acquisitions using the cash proceeds from its stake sale in Roche (RHHBY - Free Report) .

In 2021, Novartis sold its 33% stake in Roche for $20.7 billion. The company has been a shareholder of Roche since May 2001. NVS initiated a share buyback of up to $15 billion to be executed by the end of 2023. The buyback is funded through the proceeds from the recent sale of 53.3 million shares of Roche.

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

A couple of better-ranked stocks are Vertex Pharmaceuticals Incorporated (VRTX - Free Report) and Voyager Therapeutics, Inc. (VYGR - Free Report) , both carrying Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The consensus estimate for Vertex’s 2022 earnings has increased 25 cents over the past 60 days to $14.58. Shares of VRTX have gained 23.7% in the year so far.

Loss estimates for VYGR have narrowed to $1.35 from $2.20 for 2022 in the past 60 days. Earnings of Voyager surpassed estimates in three of the trailing four quarters and missed the same once, the average surprise being 41%.