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Novartis (NVS) Q4 Earnings Top, Revenues Miss Estimates

Novartis AG NVS reported mixed fourth-quarter results for 2022. Core earnings (excluding one-time charges) of $1.52 per share beat the Zacks Consensus Estimate of $1.42 and our estimate of $1.40 and was also up from $1.40 reported in the year-ago quarter.

However, revenues of $12.7 billion missed the Zacks Consensus Estimate and our estimate of $12.8 billion. Sales were also down 4% from the year-ago quarter. On a constant currency basis, sales were up 3%, driven by momentum in Entresto, Kesimpta, Kisqali and the launch of radioligand therapy, Pluvicto.

Shares of Novartis have gained 5.4% in the past year compared with the industry’s growth of 7.3%.

 

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

Quarter in Detail

Swiss pharma giant Novartis operates under two segments — Innovative Medicines and Sandoz (generics).

The Innovative Medicines division recorded sales of $10.4 billion, up 3% year over year, driven by the continued strong performance of Entresto, Kesimpta, Pluvicto and Kisqali.  However, sales missed our estimate of $10.5 billion.  Sales in the United States came in at $4.2 billion and from the rest of the world at $6.2 billion.

Entresto’s sales surged 44% from the year-ago quarter to $1.3 billion due to sustained robust demand-led growth and increased patient share across all geographies. Entresto’s sales beat the Zacks Consensus Estimate of $1.2 billion and our estimate of $1.1 billion.

However, Cosentyx’s sales decreased 9% to $1.1 billion from the prior-year quarter as sales growth in the United States was impacted by a revenue deduction for the drug (mainly due to higher-than-expected Medicaid patient mix), which was related to prior quarters in 2022. Sales missed the Zacks Consensus Estimate and our estimate of $1.3 billion.

Kesimpta’s sales came in at $369 million driven by strong launch uptake, access and increased demand due to approval in 80 countries. Strong performances by Kisqali (up 33% to $357 million), Jakavi (up 8% to $388 million), Promacta/Revolade (up 11% to $540 million) and Tafinlar + Mekinist (up 8% to $465 million) also boosted the top line. Pluvicto raked in sales of $179 million on the back of a strong launch in the United States.

However, generic competition affected sales, mainly for Afinitor/Votubia (down 32% to $106 million), Gleevec/Glivec (down 18% to $175 million), Gilenya (down 44% to $346 million) and Sandostatin (down 8% to $305 million).

Sales in the Sandoz division were $2.3 billion, which was in line with our estimate. Sales in Europe grew by 3%. This was, however, partially offset by a 10% decline in the United States. Global sales of Biopharmaceuticals grew by 3%.

Novartis AG Price and Consensus

 

Novartis AG price-consensus-chart | Novartis AG Quote

 

2022 Results

Sales in 2022 came in at $50.5 billion, up 4% from 2021 but missed the Zacks Consensus Estimate and our estimate of $50.7 billion. Core earnings per share of $6.12 beat the Zacks Consensus Estimate of $6.03.

Sandoz Update

The planned spin-off of the Sandoz unit remains on track for the second half of 2023. The transaction is expected to be tax neutral for Novartis. Novartis had earlier announced that it plans to spin off Sandoz into a new publicly traded standalone company following a strategic review. Due to industry-wide price competition among generic pharmaceutical companies and the consolidation of buyers, Sandoz experienced significant declines in sales and profits, particularly in the United States.

2023 Guidance

Novartis expects net sales for 2023 to grow in the low to mid-single digits. Sales of Innovative Medicines are projected to grow in the low to mid-single digits and Sandoz sales are also expected to grow in low to mid-single digits.

Key Updates

Pluvicto was approved in the European Union for the treatment of patients with progressive PSMA-positive metastatic castration-resistant prostate cancer (mCRPC) who have been treated with androgen-receptor pathway inhibition and taxane-based chemotherapy.

In June 2022, an appeals court held the Gilenya dosing regimen patent in the United States invalid. Novartis will file a petition seeking further review with the U.S. Supreme Court, which denied a motion to stay the issuance of the formal appeal mandate while a further review is ongoing.

The generics of the drug, approved by the FDA, are now available in the United States.

Our Take

Novartis’ performance in the fourth quarter was mixed, as earnings beat estimates but revenues lagged due to generic competition for Gilenya and a decline in Cosentyx sales. With the planned spin-off of Sandoz, Novartis is looking to become a pure-play pharmaceutical company. Drugs like Entresto, Kesimpta, Zolgensma, Kisqali and Leqvio should continue to fuel growth and offset the impact of generic competition. Pluvicto and Scemblix saw very strong launches and the Leqvio launch continues to progress.

Novartis currently carries a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the healthcare sector are Novo Nordisk NVO and Sanofi SNY. Both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past 60 days, earnings estimates for NVO for 2023 have gained 18 cents to $4.18. NVO topped earnings estimates in three of the last four quarters and has a four-quarter earnings surprise of 3.09%, on average.

Over the past 60 days, earnings estimates for Sanofi have increased to $4.25 from $4.41 for 2023. SNY also surpassed estimates in two of the trailing four quarters, with the average surprise being 9.50.

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