Novartis Tops Q1 Earnings: Cosentyx, Entresto Boost Sales

Novartis AG (NYSE:NVS) reported first-quarter 2017 core earnings of $1.13 per share, beating the Zacks Consensus Estimate of $1.10 but it was lower than the year-ago figure of $1.17.

Revenues declined 1% to $11.5 billion, roughly in line with the Zacks Consensus Estimate as volume growth was offset by the negative impact of generic competition.

A look at Novartis’ share price movement in the last three months shows that the stock underperformed the Zacks classified Large Cap Pharma industry. Its shares gained 3.8% compared with 6.7% gain for the industry.

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

The Quarter in Detail

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

The Innovative Medicines division recorded sales of $7.7 billion, up 2%. Generic competition and pricing pressure impacted sales at the segment, primarily due to the entry of generics for Gleevec in the U.S. Nevertheless, growth products – Cosentyx, Entresto, Promacta/Revolade, Jakavi, Tafinlar + Mekinist and Gilenya boosted sales.

Psoriasis Cosentyx sales surged 136% on the back of strong growth in its three approved indications while Entresto too had solid first quarter as sales benefited from continued access improvements, increased investment in the U.S. as well as additional launches in Europe. Oncology franchise grew 7% driven mainly by Promacta/Revolade, Jakavi, Tafinlar + Mekinist and Tasigna.

Sales at the Sandoz division were $2.4 billion, up 1% as volume growth was offset by price erosion. Biopharmaceuticals sales grew 30% to $274 million mainly driven by Zarxio and Glatopa 20mg in the U.S.

Sales at the Alcon division were $1.4 billion, up 1%. Vision care sales were up 4% fueled by strong performance of the daily contact lens portfolio, including continued double-digit growth of Dailies Total1 globally. However, surgical sales were down due to competitive pressure in intraocular lenses (IOLs).

2017 Outlook Reiterated

Novartis expects net sales to be broadly in line with the 2016 levels after including the impact of continued genericization of Gleevec/Glivec in the U.S. and Europe. The impact of generic competition on sales is expected to be approximately $2.5 billion in 2017.

Pipeline Update

Novartis’ pipeline progress has been encouraging. The company received FDA’s approval for Kisqali (ribociclib, formerly LEE011) in combination with an aromatase inhibitor for treatment of postmenopausal women with HR+/HER2- advanced or metastatic breast cancer.

The combination of Tafinlar + Mekinist received EU approval to treat patients with advanced or metastatic NSCLC whose tumors express the BRAF V600 mutation. In addition, Votubia dispersible tablets were approved by the EC as an adjunctive treatment for patients whose refractory partial-onset seizures are associated with TSC.

Meanwhile, the biosimilar versions of Amgen’s (NASDAQ:AMGN) Enbrel (etanercept) and Roche’s (OTC:RHHBY) MabThera/Rituxan received positive opinions from the CHMP in EU.

On the other hand, CTL019 was granted priority review by the FDA, in pediatric and young adult patients with acute lymphoblastic leukemia. CTL019 is an investigational CAR-T cell therapy. The FDA has also granted Breakthrough Therapy designation to CTL019 for the treatment of adult patients with r/r diffuse large B-cell lymphoma.

Additionally, Zykadia was granted Priority Review in the U.S. for use as a first-line treatment for patients with metastatic NSCLC with an ALK mutation and breakthrough therapy designation in this indication for patients with brain metastases.

Novartis expects to submit an application for BAF312 (siponimod) for the treatment of relapsing multiple sclerosis (RMS) in 2018 as per discussions with regulatory authorities.

On the other hand, a phase III trial on RLX030 (serelaxin) did not meet its primary endpoints.

Novartis also entered into a clinical trial agreement with Allergan (NYSE:AGN) to conduct a phase IIb study, involving the combination of a Novartis FXR agonist and Allergan's cenicriviroc (CVC) for the treatment of non-alcoholic steatohepatitis (NASH).

Our Take

Novartis first-quarter results were encouraging as the company beat earnings estimates while sales were in line with expectations.

Earlier in 2017, Novartis announced that it is mulling strategic options for Alcon which includes retaining the business separation via capital market transactions such as a spin-off or an initial public offering. Given its dismal performance, Alcon seems to be a laggard for quite some time now. The company will throw more light on its plans for Alcon toward the end of 2017.

On a positive note, growth drivers like Cosentyx and Entresto, more than offset the impact of generic erosion, mainly due to Glivec. Cosentyx hit blockbuster status in 2016. The recent approval of Kisqali in the U.S. and priority review status for CTL019 also bodes well for the company’s portfolio. We are also impressed by the company’s efforts to strengthen its biosimilars portfolio.

Zacks Rank

Novartis currently carries a Zacks Rank #5 (Strong Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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