Shares of Swiss pharma Novartis AG NVS reported weaker-than-expected results for the fourth quarter. Shares were down on sluggish results. Moreover, investors weren’t impressed with the outlook for 2019.
Fourth-quarter 2018 core earnings of $1.25 per share missed the Zacks Consensus Estimate of $1.33 but was up from $1.21 recorded in the year-ago quarter.
Revenues increased 6% year over year to $13.27 billion but missed the Zacks Consensus Estimate of $13.37 billion.
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 $9 billion, up 9%. Both pharmaceuticals and oncology business units recorded growth. Pharmaceuticals unit was up 8%, while the Oncology unit increased 11%. Psoriasis drug, Cosentyx continues to gain traction. Cosentyx sales increased to $806 million, up 33%, driven by strong demand growth in all indications in the United States and EU. Entresto’s sales grew 76% to $318 million, driven by increased worldwide uptake.
Oncology franchise grew 11%, driven by Promacta/Revolade, the Tafinlar plus Mekinist combination, and contribution from the Advanced Accelerator Applications (AAA) acquisition. Sales from AAA came in at $135 million, driven by the launch of Lutathera ($81 million)
Sales at the Sandoz division were $2.5 billion, down 5% due to price erosion in the United States. Sales in the United States declined due to pricing pressure. Biopharmaceuticals sales grew 29%, mainly driven by launches of Rixathon, the biosimilar version of Rituxan (rituximab); Erelzi, the biosimilar of Enbrel in the EU; and Zarxio (filgrastim) in the United States.
Sales at the Alcon division were $1.8 billion, up 2%. Surgical sales increased 6%, driven by double-digit growth of advanced technology IOLs (AT-IOLs), and continued growth in consumables. Vision Care sales grew 3% on double-digit growth of Dailies Total1 and strong Systane performance.
2018 Results
Sales of $51.9 billion missed the Zacks Consensus Estimate of $52.3 billion but was up 6% from 2017. Earnings per share of $5.15 also missed the Zacks Consensus Estimate of $5.21.
Business Restructuring
In September 2018, Novartis announced that it agreed to sell selected portions of its Sandoz US portfolio, specifically the Sandoz US dermatology business and the US oral solids portfolio. The divestiture is in accordance with Sandoz’s strategy of focusing on complex generics, value-added medicines and biosimilars to achieve sustainable and profitable growth in the United States in the long run. The transaction will be completed in 2019.
Earlier, Novartis announced that it intends to spin-off its ophthalmology division, Alcon, into a separately-traded standalone company to grow as a medicines company solely. The spin-off will be completed in the first half of 2019.
Novartis also sold its stake in consumer healthcare joint venture to GlaxoSmithKline GSK for $13 billion.
Outlook Updated
The company expects net sales in 2019 to grow mid-single digit. Innovative Medicines is projected to grow mid-single digit. Revenues from Sandoz are expected to be broadly in-line with that in 2018.
Pipeline Update
Gene therapy Luxturna was approved in EU to restore vision and prevent blindness in patients with biallelic RPE65 mutations. We remind investors that Novartis licensed ex-U.S. rights for Luxturna from Spark Therapeutics ONCE.
The FDA approved Promacta for first-line treatment of severe aplastic anemia (SAA), and Breakthrough Therapy designation was granted to the drug for the treatment of low platelet counts in people exposed to radiation.
Gilenya was approved in Europe for the treatment of multiple sclerosis (MS) in pediatric patients, based on the results of the PARADIGMS study.
Sandoz’s biosimilar of Amgen’s AMGN Neulasta was approved in Europe.
Our Take
Novartis’ fourth-quarter results missed estimates. The last year was a transformative year for Novartis as it restructured its business and plans to focus on becoming a core drug-focused company, powered by data and digital technologies.
The company is looking to solidify its presence in the gene-therapy space. It acquired U.S.-based clinical stage gene therapy company, AveXis, Inc. The company also acquired Endocyte to expand expertise in radiopharmaceuticals. We expect further acquisitions in the coming months as the company looks to further restructure its business.
Novartis’ stock has gained 3.8% in the last six months far compared with the industry's 9.0% growth
However, the generic division, Sandoz continues to face pricing pressure. The division also suffered a blow when the FDA issued a CRL to its generic of Advair Diskus.
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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