Novartis (NVS) Beats on Q2 Earnings & Sales, Raises Guidance

Zacks Equity Research

Swiss pharma Novartis AG’s NVS earnings and sales beat estimates in the second quarter of 2019. The company also raised its guidance for the year.

Second-quarter 2019 core earnings (excluding one-time charges) of $1.34 per share beat the Zacks Consensus Estimate of $1.20 and increased from $1.18 recorded in the year-ago quarter.

Revenues rose 4% year over year to $11.8 billion and beat the Zacks Consensus Estimate of $11.7 billion.

The stock has gained 5.2% in the year so far against the industry’s decline of 1.1%. Shares are up in pre-market trading on better-than-expected results.


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 (pharmaceuticals) and Sandoz (generics).

The Innovative Medicines division recorded sales of $9.3 billion, up 9% year over year. Within this segment, the Pharmaceuticals business unit grew 10%, as psoriasis drug Cosentyx continues to gain traction. Cosentyx sales increased 25% to $858 million, driven by strong demand in the United States. Entresto sales grew 81% to $421 million, driven by increased worldwide uptake in hospital and ambulatory settings.

Oncology unit increased 9%, driven by solid performance of Lutathera, Promacta, Kisqali and Kymriah. Lutathera was added to Novartis’ portfolio from the Advanced Accelerator Applications (AAA) acquisition. Sales from AAA came in at $171 million, driven by growth in sales of the drug ($109 million). Kisqali sales were up 94%, driven by use in first-line metastatic breast cancer patients, who are independent of menopausal status or combination partner. Promacta sales grew 23% on increased use in chronic immune thrombocytopenia and uptake as first-line treatment for severe aplastic anemia (SAA) in the United States and Japan.

Sales at the Sandoz division were $4.8 billion, up 1% as volume growth offset price erosion in the United States. Biopharmaceuticals sales grew 14%, mainly driven by strong double-digit growth in Rixathon, the biosimilar version of Rituxan (rituximab); Erelzi, the biosimilar of Enbrel; and Hyrimoz, the biosimilar of AbbVie’s ABBV Humira, in Europe.

Business Restructuring

The Alcon business was spun-off as a separate public company on Apr 9, following the shareholder vote on Feb 28.

Novartis expects to complete the previously-announced divestment of the Sandoz US oral solids and dermatology businesses later in 2019. 

Outlook Updated

The company expects net sales in 2019 to grow mid to-high-single digit (previous guidance: mid-single digit). Operating income is now expected to grow low-double digits to mid-teens (previous guidance: high-single digits). Innovative Medicines revenues are projected to grow mid to-high-single digit. Revenues from Sandoz are expected to be broadly in-line to up low single digit from 2018 level.

Pipeline Update

Pipeline progress during the second quarter was encouraging.

The FDA approved Piqray (alpelisib, formerly BYL719) for breast cancer in May 2019.  The agency also approved Zolgensma, which is the first and only gene therapy for pediatric patients with spinal muscular atrophy (SMA), a rare genetic disorder. The therapy has already been launched in the United States.

Novartis also acquired Xiidra dry eye treatment to expand its ophthalmic pharmaceuticals portfolio.

Meanwhile, SEG101 (crizanlizumab) for the treatment of sickle cell disease has been filed in the EU and the United States. It has been granted priority review by the FDA.

QVM149 (ICS/LABA/LAMA) and QMF149 (ICS/LABA) were both filed with EMA for the treatment of asthma.

The FDA earlier approved Mayzent for the treatment of adults with relapsing forms of multiple sclerosis (MS), including secondary progressive multiple sclerosis (SPMS) with active disease, relapsing remitting multiple sclerosis (RRMS) and clinically isolated syndrome (CIS).

Data from EXPAND study demonstrated that treatment had a clinically meaningful positive impact on cognitive processing speed in patients with secondary progressive MS.

Our Take

Novartis’ second-quarter results beat on earnings and sales, driven by performance of key drugs like Cosentyx, Entresto and Lutathera.  The Sandoz business also performed well on strong uptake of biosimilars.

The increase in guidance was encouraging as well.

New launches like Zolgensma and Piqray should boost performance in the second half of the year as well.

Investors should also focus on upcoming pivotal trial results of Entresto in preserved ejection fraction heart failure, ofatumumab in multiple sclerosis and fevipiprant in asthma.

Zacks Rank & Other Key Picks

Novartis currently carries a Zacks Rank #2 (Buy).

A couple of similar-ranked stocks in the same space are Merck and Co., Inc. MRK and Roche Holding AG RHHBY. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Merck’s earnings per share estimates have moved up from $4.72 to $4.74 for 2019 and from $5.20 to $5.28 for 2020 in the past 60 days.

Roche’s earnings per share estimates have moved up from $2.41 to $2.48 for 2019 and from $2.44 to $2.52 for 2020 in the past 60 days.

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