Novartis Tops on Q2 Earnings, Ups Operating Income View

Swiss pharma giant Novartis AG NVS reported better-than-expected results for the second quarter of 2024. Core earnings (excluding one-time charges) of $1.97 per share beat the Zacks Consensus Estimate of $1.87 and were up from $1.69 reported a year ago. The year-over-year growth was driven by an increase in sales.

Revenues of $12.5 billion climbed 9% from the year-ago quarter's figure. On a constant currency basis, sales increased 11%, driven by momentum in Entresto, Kesimpta, Kisqali, Cosentyx, Pluvicto and Leqvio. The top line beat the Zacks Consensus Estimate of $12.2 billion.

However, the company's shares are trading down in the pre-market following the results.

Shares of Novartis have risen 10.7% year to date compared with the industry's growth of 23.4%.

Image Source: Zacks Investment Research

Quarter in Detail

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

In October 2023, Novartis completed the spin-off of its generic and biosimilar unit, Sandoz, following which the latter became an independent company. The results of the Sandoz division and selected portions of corporate activities attributable to the Sandoz business are reported as discontinued operations.

With the successful spin-off of the Sandoz business, Novartis operates as a single global operating segment. It is now concentrating on four core therapeutic areas — cardiovascular-renal-metabolic, immunology, neuroscience and oncology.

Cardiovascular drug Entresto's sales rose 28% from the year-ago quarter's level to $1.9 billion. The increase was driven by robust demand due to increased penetration in the United States and Europe, following the continued adoption of guideline-directed medical therapy in heart failure. Increased penetration in China also boosted its demand.

Entresto's sales, however, missed the Zacks Consensus Estimate of $1.91 billion but beat our model estimate of $1.88 billion.

Cosentyx's sales (psoriasis, spondylitis and arthritis) increased 22% to $1.5 billion, which beat the Zacks Consensus Estimate of $1.44 billion and our model estimate of $1.45 billion.

In October 2023, the FDA approved Cosentyx for treating moderate-to-severe hidradenitis suppurativa (HS) in adults. The federal agency also approved the intravenous formulation (IV) of the drug for the treatment of adults with psoriatic arthritis, ankylosing spondylitis and non-radiographic axial spondyloarthritis.  Cosentyx sales grew mainly in the United States, driven by recent launches (including the HS and the IV formulation in the United States) and volume growth in core indications.

Kesimpta (multiple sclerosis) sales totaled $799 million, up 65% on increased demand. The top line easily beat the Zacks Consensus Estimate of $741 million and our model estimate of $751 million.

Kisqali's stellar performance continued, with sales soaring 50% to $717 million. The figure missed the Zacks Consensus Estimate of $719 million and our model estimate of $728 million. Sales grew strongly across all regions, based on increasing recognition of consistently reported overall survival in HR+/HER2- advanced breast cancer.

Strong performances by Jakavi (up 13% to $471 million) and Tafinlar + Mekinist (up 9% to $523 million) also boosted the top line.

Pluvicto raked in sales of $345 million, up 44% on solid growth in the United States and Europe. Novartis received approval for Pluvicto's expanded manufacturing capacity at Millburn, NJ. With unconstrained supply of Pluvicto at present, the company is now focused on initiating new patients. Sales, however, missed the Zacks Consensus Estimate of $360.5 million and our estimate of $360.9 million.

Scemblix sales surged 56% to $164 million, driven by its strong launch uptake in later lines of chronic myelogenous leukemia.

Leqvio sales skyrocketed 134% to $182 million on steady growth in demand.

Ilaris sales came in at $368 million, which increased 20% year over year on improved sales in the United States and Europe.

Xolair sales grew 22% year over year to $427 million, driven mainly by emerging growth markets and Europe. Novartis has a collaboration agreement with Roche RHHBY for Xolair. Novartis and Roche co-promote Xolair in the United States.

Luthathera sales came in at $175 million, up 17%, driven by growth in sales across all regions due to increased demand.

Zolgensma sales of $349 million were up 14%. Sales beat the Zacks Consensus Estimate of $301 million and our model estimate of $304 million.

Promacta sales were down 5% to $544 million. Tasigna sales declined 4% to $446 million.

Generic competition affected sales, mainly for Gilenya (declined 47% to $138 million).

Core operating income margin was 39.6%, up from 37.1% in the year-ago quarter.

2024 Guidance Updated

Novartis continues to expect 2024 net sales to grow in high single to low double-digits. Based on strong momentum, core operating income is now projected to grow in the mid-to-high teens (previously: low double digits to mid-teens).

The guidance assumes no generic competition for Entresto and Promacta in the United States in 2024.

Key Updates

The FDA approved Lutathera (lutetium Lu 177 dotatate) for the treatment of pediatric patients (≥12 years) with somatostatin receptor-positive gastroenteropancreatic neuroendocrine tumors.

Fabhalta (iptacopan) was approved in the EU, Japan and China for the treatment of adults with the rare blood disorder, paroxysmal nocturnal hemoglobinuria.

The FDA granted Breakthrough Therapy designation to Scemblix for the treatment of adult patients with newly diagnosed Philadelphia chromosome-positive chronic myeloid leukemia in the chronic phase.

Acquisitions

During the quarter, Novartis acquired MorphoSys AG. The acquisition added pelabresib (late-stage BET inhibitor for myelofibrosis) and tulmimetostat (early-stage dual EZH2 and EZH1 inhibitor for solid tumors or lymphomas) to NVS' pipeline.

Novartis also acquired Mariana Oncology, a biotech company focused on developing novel radioligand therapies (RLTs) across a range of solid tumors. The acquisition brought a robust portfolio of RLT programs, including MC-339, an actinium-based RLT being investigated in small cell lung cancer.

NVS also entered into an exclusive strategic license agreement with a clinical-stage biotechnology company, Arvinas, Inc. ARVN, for the worldwide development and commercialization of the latter's pipeline candidate, ARV-766. 

ARV-766 is Arvinas' second-generation PROTAC androgen receptor degrader. The candidate complements NVS' RLT platform in prostate cancer.

Our Take 

Novartis' performance in the second quarter was impressive. The rise in operating income guidance indicates strong momentum across all key brands in the upcoming quarters. The label expansion of Cosentyx for HS and IV formulation drove the drug's growth during the reported quarter.

The pipeline progress is encouraging as well. The company is now focused on strengthening its core pharmaceutical business with strategic acquisitions and deals. The MorphoSys acquisition should further expand its oncology pipeline.

Novartis currently carries a Zacks Rank #3 (Hold).

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