Novartis (NVS) Q4 Earnings & Sales Top on Cosentyx, Entresto

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Novartis AGNVS reported encouraging results for fourth-quarter 2017 wherein both earnings and revenues beat estimates driven by strong performance of Cosentyx and Entresto.

Novartis AG Price and EPS Surprise

Novartis AG Price and EPS Surprise | Novartis AG Quote

Fourth-quarter 2017 core earnings of $1.21 per share beat the Zacks Consensus Estimate of $1.16 and were up from $1.12 recorded in the year-ago quarter.

Revenues increased 5% to $12.9 billion as volume growth driven by Cosentyx and Entresto was partially offset by the negative impact of generic competition and pricing. Revenues also beat the Zacks Consensus Estimate of $12.6 billion.

Novartis' stock has rallied 3.5% in the last six months compared with the industry 's 10.8% gain.

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

Quarter in Detail

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

The Innovative Medicines division recorded sales of $8.8 billion, up 4%. Generic competition impacted sales at the segment, primarily due to the entry of generics for Gleevec in the United States and Europe. Pricing too impacted sales. Nevertheless, growth products - Cosentyx, Entresto, Promacta/Revolade, Jakavi, Tafinlar + Mekinist and Gilenya boosted sales.

Psoriasis Cosentyx achieved multi-blockbuster drug status in 2017 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.  Cosentyx generated sales of $2.1 billion in 2017. Entresto sales came in at $507 million in 2017. Oncology franchise (excluding Gleevec) grew 13%.

Sales at the Sandoz division were $2.6 billion, down 4% as volume growth was offset by price erosion in the Unites States. Sales in the United States declined 17% due to pricing pressure. Biopharmaceuticals sales grew 6% mainly driven by Zarxio in the United States and launches of Rixathon, the biosimilar version of Roche Holdings, Inc.'s RHHBY Rituxan (rituximab) and Erelzi, the biosimilar of Amgen, Inc.'s AMGN Enbrel in EU.

Sales at the Alcon division were $1.6 billion, up 6%. Surgical sales increased 9% driven by broad recovery across most market segments, including strong growth from vitreoretinal products. Vision Care sales were up 2% fueled by the continued double-digit growth of Dailies Total1.

Earlier, Novartis announced that it is mulling over strategic options for its lagging eye-care unit Alcon which includes retaining the business, or a separation via capital market transactions such as a spin-off or an initial public offering.  The company updated its strategic plan and announced that it has the potential to grow sales at or above market while delivering profitability in line with the industry. The company also made significant progress on developing a potential capital markets solution, including financial carve-outs, tax and legal entity structuring, and identifying listing and incorporation locations.  A final decision will be taken depending on Alcon's sales performance which is not likely to happen before the first half of 2019.

Meanwhile, Novartis has moved the Ophthalmic OTC products to the Alcon Division, effective Jan 1, 2018, to allow the Innovative Medicines Division to focus on pharmaceutical pipeline.

2017 Results

Sales came in at $49.1 billion, up 2% from 2016 and beat the Zacks Consensus Estimate of $48.9 billion. Earnings per share came in at $4.86 beating the Zacks Consensus Estimate of $4.79 and up from $4.75 per share in 2016.

2018 Outlook

Novartis expects net sales in 2018 to grow low to mid-single digit. Innovative Medicines is projected to grow in mid-single digit. Revenues from Sandoz is expected to be broadly in line or decline slightly. Alcon sales are estimated to grow in low to mid-single digits.

Pipeline Update

Novartis' pipeline candidates' progress has been encouraging.  2017 was a good year for Novartis with 16 major approvals. The oncology portfolio continues to gain traction.  In a significant boost, the FDA approved its breakthrough gene transfer treatment, Kymriah suspension for the treatment of patients up to 25 years of age with B-cell precursor acute lymphoblastic leukemia that is refractory or in second or later relapse.  Kymriah has been launched in the United States.  Novartis is seeking to expand Kymriah's label.

Novartis' supplemental Biologics License Application for Kymriah suspension for intravenous infusion, for the treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma who are ineligible for or relapse after autologous stem cell transplant has been accepted by the FDA for Priority Review.

Breast cancer drug Kisqali was approved in Europe as a first-line option for HR+/HER2- advanced or metastatic breast cancer in combination with any aromatase inhibitor. The drug is already approved in the United States. The company also received approval of Rydapt in Europe for the treatment of newly diagnosed FLT3-mutated acute myeloid leukemia and three types of systemic mastocytosis.

Sandoz continues to progress with its biosimilars pipeline. The proposed biosimilar version of AbbVie. Inc.'s ABBV Humira (adalimumab) has also been accepted for review by the FDA.  The biosimilar version of Humira is already review in the EU.

Tasigna was approved in Europe for the treatment of pediatric patients with newly diagnosed Philadelphia chromosome-positive chronic myeloid leukemia in the chronic phase (Ph+ CML-CP) and pediatric patients with Ph+ CML-CP with resistance or intolerance to prior therapy including imatinib.

Our Take

Novartis fourth-quarter results beat both earnings and sales estimates on strong performance of Cosentyx and Entresto. The generic division, Sandoz also combatted pricing pressure strongly buoyed by biosimilar launches of Rixathin and Erelzi. Meanwhile, the strategic decision on Alcon to retain the business or separation via capital market transactions such as a spin-off or an initial public offering has been postponed. The company believes that the Alcon division has revived well for now and hence a decision on a possible spin-off will be taken in 2019. The recent approvals of Kymriah and Kisqali will further boost the oncology portfolio and drive growth.

Zacks Rank

Novartis currently carries a Zacks Rank #3 (Hold). You can see  the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: RHHBY , NVS , ABBV , AMGN

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