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Novartis (NVS) Earnings and Revenues Miss Estimates in Q4

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Swiss pharma Novartis AG NVS reported disappointing results for the fourth quarter of 2019 as it missed both sales and earnings estimates. Nevertheless, the company provided an encouraging guidance for 2020.

Fourth-quarter 2019 core earnings (excluding one-time charges) of $1.31 per share missed the Zacks Consensus Estimate of $1.32 but increased from $1.16 reported in the year-ago quarter.

Revenues rose 9% year over year to $12.4 billion, driven by Entresto, Zolgensma, Cosentyx and Kisqali.  However, revenues too missed the Zacks Consensus Estimate of $12.49 billion.

The stock has gained 10.4% in the past year, lagging the industry’s growth of 14.7%.

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 $9.9 billion, up 11% year over year. Within this segment, the Pharmaceuticals business unit grew 14%, driven by continued momentum on Entresto and Cosentyx and the uptake of Zolgensma.

Psoriasis drug Cosentyx continues to gain traction. Cosentyx sales increased 21% to $965 million, driven by strong demand in the United States. Entresto sales grew 65% to $518 million, driven by increased worldwide uptake in hospital and ambulatory settings. Increasing contributions from Zolgensma (gene therapy for pediatric patients with spinal muscular atrophy) and Xiidra also boosted this business unit.

The Oncology business unit grew 8%, driven by continued momentum in Kisqali and Kymriah and the launch uptake of Piqray. Kisqali sales surged 166%, driven by use in metastatic breast cancer patients, independent of menopausal status or combination partner, and benefiting from overall survival data, as well as strong uptake and patient share gain in Europe and other regions.

Sales at the Sandoz division were $2.5 billion, up 2% as volume growth offset price erosion in the United States. Biopharmaceuticals sales grew 11%, driven by continued strong double-digit growth in Europe. Novartis expects the previously-announced divestment of the Sandoz US oral solids and dermatology portfolio to be completed in the first quarter of 2020, pending regulatory approval.

The Alcon business was spun-off as a separate public company on Apr 9 and hence, the results of that business are included as discontinued operations.
2019 Results

Sales came in at $47.4 billion, increasing 9% from 2018 but missing the Zacks Consensus Estimate of $48.35 billion. Earnings per share of $5.28 was in line with the Zacks Consensus Estimate and grew from $4.71 in 2018.

Guidance for 2020

The company expects net sales in 2020 to grow in mid to high-single digits. Innovative Medicines revenues are projected to grow in mid to high-single digits. Revenues from Sandoz are expected to grow in low-single digits.

Pipeline Update

The pipeline progress during the fourth quarter was encouraging.

Adakveo (crizanlizumab) was approved by the FDA to reduce the frequency of pain crises in individuals living with sickle cell disease. The approval came approximately two months ahead of the FDA’s priority review action date.

Novartis obtained FDA approval for Beovu for the treatment of wet age-related macular degeneration and the drug was launched in the United States. The drug also obtained a positive CHMP opinion in December.

Mayzent (siponimod) was approved in the EU for the treatment of adult patients with active secondary progressive multiple sclerosis (SPMS).

Ziextenzo, a biosimilar of pegfilgrastim, was approved and launched in the United States.

Inclisiran, an investigational cholesterol-lowering therapy to address cardiovascular diseases, was added to the pipeline from the acquisition of The Medicines Company. Inclisiran was submitted in the United States for the treatment of primary hyperlipidemia and in the EU for mixed dyslipidemia.

Our Take

Novartis’ fourth-quarter results were disappointing as both earnings and sales missed estimates. Nevertheless, sales were up year over year, driven by the solid performance of key drugs like Cosentyx and Entresto, and contribution from gene therapy, Zolgensma. The guidance for 2020 was encouraging as well.

New launches like Piqray and Beovu should further boost the company’s performance in the upcoming quarters. In particular, strong uptake is expected from Beovu as it is the first FDA-approved anti-VEGF to offer greater fluid resolution as compared to Regeneron REGN and Bayer’s BAYRY market-leading drug, Eylea. Beovu’s potential to treat patients with quarterly injections is a major positive and should enable it to capture market share.

Zacks Rank & A Key Pick

Novartis currently carries a Zacks Rank #3 (Hold).

A better-ranked stock in the same space is Roche (RHHBY - 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.

Roche’s earnings per share estimates have moved up from $2.58 to $2.66 for 2020 in the past 60 days.

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