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Novartis (NVS) Q1 Earnings: Will the Stock Disappoint?

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Swiss pharmaceutical company Novartis AG (NVS - Free Report) is scheduled to report first-quarter 2017 results on Apr 25.

A look at Novartis’ share price movement year to date shows that the stock has underperformed the Zacks classified Large Cap Pharma industry. Its shares have declined 0.2%, as against the industry’s gain of 4.2%.

In the last reported quarter, Novartis recorded a positive earnings surprise of 2.75%. Overall, the company has posted an average positive earnings surprise of 2.38% in the four trailing quarters. Let’s see how things are shaping up for this announcement.

Factors to Impact the Quarter

Novartis operates under three segments: Innovative Medicines (Pharmaceuticals), Alcon and Sandoz (Generics).

In fact, loss of exclusivity of some of the key drugs in Novartis’ portfolio is hurting the top-line. We expect the negative trend to continue in the first quarter of 2017.

While on one hand, the company’s blockbuster drug, Diovan, is facing stiff generic competition in the U.S., the EU and Japan. On the other hand, Gleevec lost exclusivity in the U.S. in Feb 2016 and inthe EU in Dec 2016, thereby leading to generic competition. Exforge is also facing generic competition in the U.S. and the EU. Furthermore, the oncology drugs are facing new competition in the form of immuno-oncology therapies. The negative impact of generic competition is expected to impact sales by $2.5 billion in 2017 as well.

The company’s ophthalmologic division, Alcon, continues to face challenges due to lower surgical equipments sales as a result of competition faced by intraocular lens and a slowdown in demand for equipment purchases.We do not expect any improving trends in the division’s sales in the to-be-reported quarter.

Novartis suffered quite a few pipeline setbacks in the quarter. The FDA issued a Complete Response Letter (CRL) to RLX030. Recently, the company also reported disappointing data from a late-stage study on the candidate for the treatment of acute heart failure. Furthermore, RELAX-AHF-2 did not meet its primary endpoints of reduction in cardiovascular death through day 180 or reduced worsening heart failure through day five.  

We expect management to discuss the issues at the conference call.
Additionally, Novartis’ generic arm, Sandoz, is making efforts to strengthen the biosimilars portfolio generics. The company plans to launch five biosimilars of major oncology and immunology biologics across key geographies by 2020.

In the quarter, Novartis received FDA approval of Kisqali, formerly known as ribociclib (LEE011), for use in combination with an aromatase inhibitor for the first-line treatment of postmenopausal women with hormone receptor positive, human epidermal growth factor receptor-2 negative (HR+/HER2-) advanced or metastatic breast cancer. We expect the company to throw light on the commercialization plans of the drug at the first quarter conference call.

Earnings Whispers

Our proven model does not conclusively show that Novartis will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. Unfortunately, that is not the case here, as you will see below.

Zacks ESP: The Earnings ESP for Novartis is 0.00%.  This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.10. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Novartis has a Zacks Rank #5 (Strong Sell).

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Novartis AG Price and EPS Surprise


Novartis AG Price and EPS Surprise | Novartis AG Quote

Stocks to Consider

Here are some other pharma stocks that you may want to consider, as our model shows that they too have the right combination of elements to post an earnings beat this quarter.

Amgen Inc. (AMGN - Free Report) has an Earnings ESP of +1.99% and a Zacks Rank #3. The company is scheduled to release results on Apr 26. You can see the complete list of today’s Zacks #1 Rank stocks here.

Gilead Sciences, Inc. (GILD - Free Report) has an Earnings ESP of +4.63% and a Zacks Rank #3. The company is scheduled to release results on May 2.

Intercept Pharmaceuticals, Inc. (ICPT - Free Report) has an Earnings ESP of +9.13% and a Zacks Rank #3.  The company is expected to release results on May 4.

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