) reported second quarter 2014 earnings per share of $1.05, up 8%
from the year-ago period. Core earnings per share came in at $1.34,
up 7% from the year-ago period but missed the Zacks Consensus
Estimate of $1.36 by a couple of cents.
All growth rates mentioned below are on a year-on-year basis and
at constant exchange rates (CER).
Second quarter revenues increased 2% year over year to $14.6
billion but missed the Zacks Consensus Estimate of $14.7
Quarter in Detail
Following the divestiture of the diagnostics business in Jan
2014 and the agreement to sell Vaccines business in Apr 2014,
Novartis now operates in three divisions: Pharmaceuticals, Alcon,
and Generics (Sandoz).
The Pharmaceuticals division recorded sales of $8.2 billion in
the reported quarter, up 1% driven by strong volume growth and
positive pricing. Key drugs at Novartis - Gilenya, Afinitor,
Tasigna, Galvus, Lucentis, Xolair, the chronic obstructive
pulmonary disease portfolio and Jakavi - contributed 42% to total
sales in the second quarter of 2014, compared with 36% in the
year-ago quarter. However, the division was impacted by generic
competition for Zometa/Aclasta and Diovan Mono.
The Alcon Division recorded sales of $2.8 billion in the second
quarter, up 4%, driven by growth in Surgical franchise and
Ophthalmic Pharmaceuticals. Growth in the Surgical franchise was
driven by equipment sales. Additionally, the Vision Care business
increased driven by strong sales in contact lenses.
Sales in the Sandoz division increased 4% to $2.3 billion
primarily due to volume growth, partially offset by price erosion.
Biosimilars generated sales of $128 million, up 23%.
We remind investors that Novartis divested its blood transfusion
diagnostics unit to Grifols S.A., for approximately $1.7 billion in
cash, in Jan 2014. In Apr 2014, Novartis announced that it will
sell its Vaccines business to
) for $7.1 billion.
Novartis and Glaxo have entered into a joint venture (JV),
combining their consumer divisions (Novartis OTC and GSK Consumer
Healthcare) to form a larger consumer healthcare business. Novartis
will own 36.5% share of the JV and will have four of eleven seats
on the JV's board.
Novartis expects to close the transaction with Glaxo in the
first half of 2015.
Moreover, Novartis also entered into a definitive agreement with
Eli Lilly and Company (
) to divest the Animal Health Division for $5.4 billion in a
separate transaction in Apr 2014. Novartis expects to close this
transaction in the first quarter of 2015.
2014 Outlook Reiterated
Novartis expects sales to increase in low-to-mid single digits
in 2014. A generic version of the hypertension drug Diovan Mono was
launched in the U.S. earlier this month and Sandoz also launched an
authorized generic version of the same. Generics are projected to
impact sales by $2.6 billion in 2014.
During the quarter, the FDA granted fast track designation to
pipeline candidate LCZ696. Novartis is evaluating the candidate for
the treatment of patients suffering from chronic heart
Meanwhile, Novartis' Zykadia received FDA approval for the
treatment of patients with anaplastic lymphoma kinase positive
(ALK+) metastatic non-small cell lung cancer (NSCLC) who have
progressed on or are intolerant to crizotinib.
Novartis expects an opinion from the Committee for Medicinal
Products for Human Use (CHMP) for secukinumab in the fourth quarter
of 2014 and the FDA action date is Jan 2015. The candidate is being
evaluated for the treatment of psoriasis.
Second quarter results were disappointing as Novartis missed the
Zacks Consensus Estimate on both counts. We remind investors that
Diovan Mono was one of the key drugs of Novartis and the entry of
generics will hit sales in the second half.
Nevertheless, we will cautiously watch Novartis' efforts to
realign its portfolio in order to focus on its core portfolio of
pharmaceuticals, eye care and generics. We believe the deal to
acquire oncology products from GlaxoSmithKline and the divestiture
of the Vaccines business is a step in the right direction. It will
broaden Novartis' portfolio and enable it to focus better on its
core capabilities besides contributing immensely to the top
Novartis, a large cap pharma, currently carries a Zacks Rank #3
(Hold). Right now,
) looks well positioned among the large cap pharmas. It carries a
Zacks Rank #2 (Buy).
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