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Is a Surprise in the Cards for Novartis (NVS) in Q4 Earnings?

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Swiss pharma-giant Novartis AG (NVS - Free Report) is scheduled to report fourth-quarter 2018 results on Jan 30.

Novartis has a mixed track record. In the last reported quarter, Novartis reported in-line results. The company posted average positive earnings surprise of 1.27% in the trailing four quarters. Let's see how things are shaping up for this announcement.

Factors at Play

Novartis did not provide any quarterly guidance. The company expects net sales in 2018 to grow mid-single digit. Innovative Medicines is projected to grow mid to high-single digit. Revenues from Sandoz are expected to decline low-single digit, while Alcon sales are estimated to grow mid-single digit.

The Innovative Medicines division maintains momentum on the back of strong oncology performance. Novartis has a strong oncology portfolio of drugs like Afinitor, Exjade, Jakavi, Zykadia, Tasigna, Jadenu and Kisqali. Oncology franchise continues to grow on the back of Promacta/Revolade, Tafinlar + Mekinist, Jakavi and recent launches. The Eurooean Commission recently approved a label expansion of Kisqali.

Psoriasis Cosentyx continues to gain traction on the back of strong growth in its three approved indications, while Entresto’s sales benefited from continued access improvements and expansion of sales force in the United States. We expect the division to record similar growth in the fourth quarter and combat generic pressure for key drugs — Diovan, Gleevec and Exforge.

However, the generic division faces challenges in the form of price erosion in the United States due to competitive pressure. The trend might continue in the fourth quarter as well.  Nevertheless, the launches of Rixathon, the biosimilar version of Rituxan (rituximab), and Erelzi, the biosimilar of Enbrel in EU, will partially offset the decline in the United States. In Europe, Sandoz also obtained approval for Zessly, a biosimilar version of Johnson & Johnson’s Remicade. The FDA also approved Hyrimoz, the biosimilar of Humira.

Novartis intends to spin-off its ophthalmology division, Alcon, into a separately-traded standalone company in order to grow as a medicines company solely. The Alcon business wasn’t performing according to management’s expectations. While it did revive in between, the company decided to spin-off the same to focus better on its legacy drug business. Nevertheless, Alcon sales are estimated to grow in low-to-mid-single digits.

Apart from the top and bottom-line numbers, we expect investors to focus on the company’s pipeline updates. Novartis recently acquired Endocyte to expand expertise in radiopharmaceuticals and transformational therapeutic platforms. The acquisition will add 177Lu-PSMA-617, a potential first-in-class radioligand therapy, to Novartis’ diverse portfolio. The therapy is in phase III development for metastatic castration-resistant prostate cancer (mCRPC).

The FDA has accepted the company's Biologics License Application (BLA) for AVXS-101, now known as Zolgensma (onasemnogene abeparvovec-xxxx). The FDA also granted a Priority Review to Zolgensma and regulatory action is expected in May 2019.

The European Commission also approved Luxturna, a one-time gene therapy, for the treatment of patients suffering from vision loss due to a genetic mutation in both copies of the RPE65gene who have enough viable retinal cells. The EC granted marketing authorization to Ziextenzo, the biosimilar of Amgen’s (AMGN - Free Report) Neulasta. Management should also throw more light on its acquisition plans for 2019.

Share Price Performance

Novartis’ stock has gained 4.7% in the last six months, same as the industry's growth.

 

Earnings Whispers

Our proven model does not conclusively show that Novartis will beat on 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.

Earnings ESP: Earnings ESP for Novartis is 0.00%.  This is because both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $1.34. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Zacks Rank: Novartis currently carries a Zacks Rank #2.

Although the rank is favorable, the company's 0.00% ESP makes surprise prediction difficult.

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.

Stock to Consider

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

Celgene Corp. (CELG - Free Report) is scheduled to release its results on Jan 31. The company has an Earnings ESP of +2.31% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

AbbVie Inc. (ABBV - Free Report) is scheduled to release its results on Jan 25. The company has an Earnings ESP of +0.75% and a Zacks Rank #3.

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