Novartis AG (NYSE: NVS) to $112 from $100. The company is focused on developing and acquiring products that will drive top-line growth. These products include Inclisiran, which reduces pain from sickle cell disease and is on track for approval by the end of 2020, and a cell therapy intended to treat acute respiratory distress syndrome (ARDS) associated with COVID-19. In addition, Novartis is launching newly approved products and newly approved indications for existing drugs. It also has new drugs under development in such critical areas as coronary disease, oncology and gene therapy.
Novartis delivered mixed 3Q20 results on October 27. Net sales of $12.3 billion were flat in constant currency and up 1% on a reported basis. Volume growth of 7% was offset by the impact of price erosion (-4%) and generic competition (-3%). Core EPS rose to $1.52, up 9% operationally and 8% as reported.
The growth in EPS was largely driven by margin expansion. The operating margin rose 280 basis points to 33.2%.
Sales in the Innovative Medicines segment rose 1% on an operational basis to $9.837 billion. The results reflected stronger sales of Entresto, Zolgensma, Consentyx, Kisqali, and Promacta/Revolade, offset by lower sales of Afinitor and Exjade, which are seeing generic competition. Demand for specialty drugs in dermatology and ophthalmology slowed due to the pandemic.
In the Established Medicines segment, sales fell 11% on an operational basis to $1.518 billion, reflecting both lower pricing and the impact of generic competition.
In the Sandoz business, sales fell 3% operationally to $2.422 billion, hurt by disrupted patient access to hospitals and reduced visits to physicians’ offices.
While Novartis received regulatory approval for a number of new drugs in 3Q, it also faced increased competition for several top-selling products. These include Cosentyx, which is seeing greater competition from new immunology drugs. In oncology, Sandostatin, Gleevac, Afinitor and Exjade are also facing generic competition. Tasigna, the company’s largest oncology drug by sales ($478 million in 3Q20) saw sales decline 2%. Total oncology sales fell 1% on an operational basis to $3.698 billion.
Inclisiran, to be known commercially as Leqvio, aims to lower an inherited form of high cholesterol. It works by suppressing the body’s synthesis of the PCSK9 enzyme, lowering the level of low-density lipoprotein cholesterol (LDL-C). High levels of LDL-C can result in premature atherosclerotic cardiovascular disease. Inclisiran received a positive opinion in October from the European Medicines Agency (EMA). Inclisiran came to Novartis through its $9.7 billion acquisition of The Medicines Company in January 2020.
Other regulatory milestones achieved during the third quarter were:
– Kesimpta was approved and launched in the U.S.
– In October, after the end of the quarter, Adakveo was approved in Europe for the prevention of painful vaso-occlusive crises in sickle cell disease. Adakveo has also been approved in the U.S. for the same indication.
– In November, Novartis obtained exclusive rights for a cell therapy from Mesoblast Ltd. that treats acute respiratory distress syndrome (ARDS), which is associated with COVID-19.
EARNINGS & GROWTH ANALYSIS
The company updated its guidance for 2020. It continues to expect mid-single-digit sales growth in constant currency. It expects core operating income to grow in the low double digits to the mid-teens, compared to its prior forecast calling for a low double-digit increase.
FINANCIAL STRENGTH & DIVIDEND
Management’s top priorities for cash are to invest in drug development, organic growth and acquisitions, and to support the dividend.
MANAGEMENT & RISKS
D r. Vasant Narasimhan has been the CEO of Novartis since February 2019. He joined the company in 2005 and served as global head of drug development and chief medical officer before becoming CEO.
The pandemic has delayed the enrollment of participants in some clinical trials and extended the timeline for the regulatory review of certain drugs.
Novartis is a pharmaceutical company based in Switzerland. Its key divisions are Innovative Medicines (primary care and specialty drugs) and Sandoz (generic pharmaceuticals). The company employs 110,000 people.
On December 2, BUY-rated NVS closed at $91.58, up $0.86.