Nt4.zacks.com
|Novartis AG |(NVS – NYSE) |$81.06* |
Note: This report contains substantially new material. Subsequent reports will have changes highlighted
Reason for Report: 4Q17 Earnings with New Reports
Prev. Ed.: Jan 15: 3Q17 Earnings Update (share price and broker material considered till Dec 31, 2017).
Brokers’ Recommendations: Positive: 40.0% (2); Neutral: 20.0% (1); Negative: 20.0% (1); Prev. Ed. 3:2: 1
Brokers’ Target Price: $94.37 (↑$4.57 from the last edition; 3 firms) Brokers’ Avg. Expected Return: 16.4%
*Note: Though dated Apr 15, share price and brokers’ material are as of Apr 5, 2018.
Note: The tables below (Revenue, Margins, and Earnings per Share) contain material from fewer brokers than in the Valuation table. The extra figures in the Valuation table come from reports that did not have accompanying spreadsheet models.
Note: All reference to growth rates is at constant exchange rates (CER).
Portfolio Manager Executive Summary
Novartis AG is a leading global healthcare company. The company’s main areas of operation are branded and generic prescription drugs. In the branded drugs category, the company holds a strong position in cardiovascular and oncology. Novartis also owns several consumer health-related businesses. Following the portfolio reorganization in 2014, Novartis operates under three segments: Innovative Medicines (Pharmaceuticals), Alcon (Ophthalmology unit) and Sandoz (Generics).
Of the eight firms covering Novartis, 40.0% (2) were positive, 20.0% (1) were neutral and 20% (1) were negative on the stock.
Positive outlook (2/4 firms): The bullish firms believe that Novartis’ three attractive businesses – pharmaceuticals, eye care, and generics – along with a strong revenue growth profile, which is backed partly by heavy diversification and solid pipeline, bode well for the company. The firms expect growth from recently approved products to enable the company to mitigate patent losses in the near term. These firms are impressed by the company’s deep pipeline.
Neutral outlook (1/4 firms): These firms believe that Novartis is facing multiple headwinds as of now- lagging performance of Alcon despite restructuring, intensifying competition for Gleevec from Roche’s Ocrevus. In addition, Gleevec is also facing competition from generics while Afinitor and Gilenya will also lose patent protection in the United States by 2019 and 2020, respectively. The uptake of Entresto has been slow and will impact the top line. The firms prefer to be on the sidelines until they witness meaningful growth in Entresto sales as growth in Sandoz will be partially offset by the above-mentioned factors.
Negative outlook (1/4 firms): Reports not available.
Jan 15, 2018
Overview
Novartis is a health care company based in Basel, Switzerland. Its broad portfolio includes pharmaceutical drugs, vaccines, surgical products, ophthalmic pharmaceutical and vision care products, generics and consumer health products. After the divestment of its blood transfusion diagnostics unit in Jan 2014, the Vaccines and Diagnostics unit was renamed Vaccines. Novartis sold its Vaccines business (excluding flu) to Glaxo for $7.1 billion along with royalties earlier in 2015. Additionally, Novartis divested its influenza vaccines business to CSL Limited for $275 million in Jul 2015. Currently, the company is focused on its three leading businesses – pharmaceuticals, generics and eye care.
Novartis has collaborations with several companies. Further, the company gained full ownership of Alcon, which has created a new growth platform for Novartis in the fast growing eye-care sector. The company’s website address is .
The firms have identified the following factors for evaluating the investment merits of Novartis:
|Key Positive Arguments |Key Negative Arguments |
|The company has a wide portfolio of products and does not depend on any |A number of key drugs at Novartis are already facing patent expirations and|
|single product for growth. Moreover, the portfolio realignment plans with |more will lose exclusivity in the next few years. Novartis’ blockbuster |
|the divestiture of the Animal Health and Vaccine divisions and acquisition|hypertension drug, Diovan, saw dwindling sales due to generic competition |
|of Glaxo’s oncology business will allow Novartis to focus on its core |in the United States. (Diovan monotherapy generic entry in Jul 2014), many |
|businesses. |EU countries and Japan (generic entry in Jun 2014). Gleevec also lost |
| |patent protection. Generic competition is expected to adversely impact |
| |sales in 2017 as well. The newly launched products may not generate |
| |sufficient revenues to bridge the gap caused by generic erosion. |
|Novartis has made strong progress on innovation with several new approvals|2017 is also expected to be challenging year for the company. Moreover, |
|– Jakavi received European approval for polycythemia vera (PV), Farydak |some countries like Venezuela are experiencing high inflation rates leading|
|received FDA approval for multiple myeloma and Jadenu (oral formulation of|to further devaluations of their currencies resulting in unfavorable |
|Exjade) received FDA approval to simplify daily treatment for patients |movements in foreign currency rates. Pricing pressure continues to persist |
|with chronic iron overload. Additionally, new approvals for Sandoz – |and is expected to increase in 2017. |
|Zarxio and Glatopa – strengthened the biosimilars business. Cosentyx, | |
|Entresto and the oncology assets from Glaxo are expected to drive growth. | |
|The FDA approval of breakthrough gene transfer treatment, Kymriah | |
|suspension for the treatment of patients up to 25 years of age with B-cell| |
|precursor acute lymphoblastic leukemia (ALL) that is refractory or in | |
|second or later relapse is a significant boost. Kymriah, formerly CTL019, | |
|is the first chimeric antigen receptor T cell (CAR-T) therapy approved. | |
|The approval is a major boost for Novartis given the potential in the CAR | |
|T therapy space. | |
Note: The company’s financial year coincides with the calendar year.
Jan 15, 2018
Long-Term Growth
Novartis is continuously making progress with new product approvals, which demonstrates its non-dependence on any single product for future growth. In addition to investments in innovation, Novartis is undertaking group-wide productivity initiatives, which are expected to improve efficiency in manufacturing, sales, marketing and procurement.
Meanwhile, Novartis has realigned its portfolio. In order to focus on its core businesses of pharmaceuticals, eye care and generics, the company divested its Animal Health Division for $5.4 billion to Eli Lilly in Jan 2015. The company also sold its Vaccines business (excluding flu) to Glaxo for $7.1 billion along with royalties in exchange of the latter’s oncology products for $14.5 billion plus up to $1.5 billion as milestone payments. The assets have been integrated into the company’s portfolio. This will improve the financial profile of the company and position Novartis for healthcare industry challenges in the future. Additionally, Novartis divested its influenza vaccines business to CSL Limited for $275 million in Jul 2015. Glaxo and Novartis have decided to form a joint venture, thereby combining their consumer divisions (Novartis OTC and Requires Entitlement K Consumer Healthcare) to form a larger consumer health care business. A number of product approvals including those of Entresto, Cosentyx (moderate-to-severe plaque psoriasis), Jakavi (PV), Jadenu (chronic iron overload due to blood transfusions) and Glatopa (relapsing forms of multiple sclerosis) are expected to boost the top-line.
Meanwhile, Sandoz, the generic arm of Novartis, stands to benefit from the wave of patent expiry as demand for cheap generic alternatives of expensive drugs is increasing. Given the uncertain economic outlook, various government agencies as well as privately managed care organizations are taking initiatives to promote generics in place of costlier branded treatments. These factors, together with an aging population and a corresponding increase in health care costs should lead to continued expansion of the generics marketplace. Sandoz, which is a strong player in the biosimilar market with five marketed biosimilars (Omnitrope, a human growth hormone; Binocrit, an erythropoiesis-stimulating agent used to treat anemia; and filgrastim for neutropenia under the brand names Zarzio outside the United States and Zarxio in the United States.). The company plans to launch five major oncology and immunology biosimilars between 2017 and 2020. This includes a biosimilar version of Rituxan (rituximab), which was approved by the European Commission in June 2017 (marketed as Rixathon). Recently, the FDA accepted its Biologics License Application (BLA) for a proposed biosimilar version of Rituxan. In August 2016, Sandoz’s Erelzi, a biosimilar version of Amgen blockbuster drug Enbrel gained approval in the United States for five indications. Erelzi was also approved by the European Commission in 2017. In May 2017, the European Medicines Agency also accepted the company’s Marketing Authorization Applications for biosimilar versions of Humira (adalimumab) and Remicade (infliximab) for review.
However, Alcon was facing challenges due to competition. Consequently, Novartis has decided to move ophthalmic pharmaceuticals business to its core pharmaceutical division. Thus, the Alcon division will focus only on the surgical and the vision care businesses. The company is facing strong generic threat which continues to erode the company’s revenues. Novartis’ blockbuster hypertension drug, Diovan, lost patent protection in the United States and the EU. Femara and Zometa have also lost patent protection. Moreover, Gleevec is also facing competition. Headwinds for 2017 include genericization of Gleevec as well as a significantly higher launch investment for Cosentyx and Entresto, along with unfavorable currency movements.
Jan 15, 2018
Target Price/Valuation
|Rating Distribution |
|Positive |40.0%↓ |
|Neutral |20.0%↓ |
|Negative |20.0%↑ |
|Avg. Target Price |$94.37↑ |
|High |$98.00↑ |
|Low |$92.00↓ |
|No. of Analysts with Target price/Total |3/4 |
Recent Events
Novartis Q4 Earnings & Sales Top on Cosentyx, Entresto – Jan 24
Novartis reported encouraging results for fourth-quarter 2017 wherein both earnings and revenues beat estimates driven by strong performance of Cosentyx and Entresto.
Fourth-quarter 2017 core earnings of $1.21 per share beat the Zacks Consensus Estimate of $1.16 and were up from $1.12 recorded in the year-ago quarter. Revenues increased 5% to $12.9 billion as volume growth driven by Cosentyx and Entresto was partially offset by the negative impact of generic competition and pricing. Revenues also beat the Zacks Consensus Estimate of $12.6 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 $8.8 billion, up 4%. Generic competition impacted sales at the segment, primarily due to the entry of generics for Gleevec in the United States and Europe. Pricing too impacted sales. Nevertheless, growth products — Cosentyx, Entresto, Promacta/Revolade, Jakavi, Tafinlar + Mekinist and Gilenya boosted sales.
Psoriasis Cosentyx achieved multi-blockbuster drug status in 2017 on the back of strong growth in its three approved indications while Entresto’s sales benefited from continued access improvements and expansion of sales force in the United States. Cosentyx generated sales of $2.1 billion in 2017. Entresto sales came in at $507 million in 2017. Oncology franchise (excluding Gleevec) grew 13%.
Sales at the Sandoz division were $2.6 billion, down 4% as volume growth was offset by price erosion in the Unites States. Sales in the United States declined 17% due to pricing pressure. Biopharmaceuticals sales grew 6% mainly driven by Zarxio in the United States and launches of Rixathon, the biosimilar version of Rituxan (rituximab) and Erelzi, the biosimilar of Amgen, Inc.’s Enbrel in EU.
Sales at the Alcon division were $1.6 billion, up 6%. Surgical sales increased 9% driven by broad recovery across most market segments, including strong growth from vitreoretinal products. Vision Care sales were up 2% fueled by the continued double-digit growth of Dailies Total1.
Earlier, Novartis announced that it is mulling over strategic options for its lagging eye-care unit Alcon which includes retaining the business, or a separation via capital market transactions such as a spin-off or an initial public offering. The company updated its strategic plan and announced that it has the potential to grow sales at or above market while delivering profitability in line with the industry. The company also made significant progress on developing a potential capital markets solution, including financial carve-outs, tax and legal entity structuring, and identifying listing and incorporation locations. A final decision will be taken depending on Alcon’s sales performance which is not likely to happen before the first half of 2019.
Meanwhile, Novartis has moved the Ophthalmic OTC products to the Alcon Division, effective Jan 1, 2018, to allow the Innovative Medicines Division to focus on pharmaceutical pipeline.
2017 Results
Sales came in at $49.1 billion, up 2% from 2016 and beat the Zacks Consensus Estimate of $48.9 billion. Earnings per share came in at $4.86 beating the Zacks Consensus Estimate of $4.79 and up from $4.75 per share in 2016.
2018 Outlook
Novartis expects net sales in 2018 to grow low to mid-single digit. Innovative Medicines is projected to grow in mid-single digit. Revenues from Sandoz is expected to be broadly in line or decline slightly. Alcon sales are estimated to grow in low to mid-single digits.
Pipeline Update
Novartis’ pipeline candidates’ progress has been encouraging. 2017 was a good year for Novartis with 16 major approvals. The oncology portfolio continues to gain traction. In a significant boost, the FDA approved its breakthrough gene transfer treatment, Kymriah suspension for the treatment of patients up to 25 years of age with B-cell precursor acute lymphoblastic leukemia that is refractory or in second or later relapse. Kymriah has been launched in the United States. Novartis is seeking to expand Kymriah’s label.
Novartis’ supplemental Biologics License Application for Kymriah suspension for intravenous infusion, for the treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma who are ineligible for or relapse after autologous stem cell transplant has been accepted by the FDA for Priority Review.
Breast cancer drug Kisqali was approved in Europe as a first-line option for HR+/HER2- advanced or metastatic breast cancer in combination with any aromatase inhibitor. The drug is already approved in the United States. The company also received approval of Rydapt in Europe for the treatment of newly diagnosed FLT3-mutated acute myeloid leukemia and three types of systemic mastocytosis.
Sandoz continues to progress with its biosimilars pipeline. The biosimilar of Roche’s Rituxan, Rixanthon, and Amgen’s Erelzi has been launched in the EU. The proposed biosimilar version of AbbVie. Inc.’s Humira (adalimumab) has also been accepted for review by the FDA. The biosimilar version of Humira is already review in the EU.
Tasigna was approved in Europe for the treatment of pediatric patients with newly diagnosed Philadelphia chromosome-positive chronic myeloid leukemia in the chronic phase (Ph+ CML-CP) and pediatric patients with Ph+ CML-CP with resistance or intolerance to prior therapy including imatinib.
Revenue
The The company reported net sales of $12.9 billion in 4Q17, up 2% y/y as volume growth (7%) was offset by the impact of generics (-3%) and pricing (-2%). The Zacks Digest average 4Q17 revenues were $12.6 billion.
2018 Outlook: Novartis expects net sales in 2018 to grow low to mid-single digit. Innovative Medicines is projected to grow in mid-single digit. Revenues from Sandoz is expected to be broadly in line or dip marginally. Alcon sales are estimated to grow in low to mid-single digits. The impact of generic competition on sales is expected to be approximately $2.5 billion in 2018
|Revenue |4Q16A |2016A |1Q17A |2Q17A |3Q17A |
|($ in | | | | | |
|million) | | | | | |
Tasigna (nilotinib)
Indication: Ph+ CML in the chronic phase, and for the treatment of adults with Ph+ CML in the chronic or accelerated phase who are resistant or intolerant to at least one prior therapy including Gleevec/Glivec.
Product Life Cycle Position: Marketed
Sales: Tasigna sales in 4Q17 were $485 million, up 6% y/y driven by growth in key markets. During Q2, the European Commission approved the inclusion of Treatment-free Remission (TFR) data in the Tasigna Summary of Product Characteristics (SmPC). A supplemental New Drug Application (sNDA) for Tasigna (nilotinib) in TFR was accepted for review by the FDA and granted priority review. The Zacks Digest average 4Q17 Tasigna revenues were in line with the company’s report.
Additional Studies: In Jun 2017, the European Commission (EC) approved the inclusion of Treatment-free Remission (TFR) data in the oncology drug Tasigna’s Summary of Product Characteristics (SmPC). TFR helps in maintaining molecular response (MR) after stopping tyrosine kinase inhibitor (TKI) therapy in Ph+CMIL patients in chronic phase. The approval was based on efficacy and safety findings from the 48-week analyses of two open label trials, ENESTfreedom and ENESTop by the European Commission. Novartis also announced new data on Tasigna. New 96-week data support durability and safety of TFR in Ph+ CML-CP patients who stop taking Tasigna. More than 90% of Ph+ CML-CP patients in ENESTfreedom and ENESTop who stopped Tasigna and were in TFR at 48 weeks remained in TFR at 96 weeks. In Dec 2017, the FDA approved the inclusion of Treatment-free Remission (TFR) data in the Tasigna in the product label in the United States.
|$ in million |2016A |2017A |2018E |2019E |Est. Growth (16-’19) |
Afinitor (everolimus; RAD001)
Indication: approved in combination with Aromasin (exemestane) for HR+/HER2 negative advanced breast cancer after failure with a non-steroidal aromatase inhibitor; for advanced renal cell carcinoma (aRCC) following VEGF-targeted therapy; for locally advanced, metastatic or unresectable progressive pancreatic neuroendocrine tumors (NET); for advanced, progressive, well-differentiated, nonfunctional gastrointestinal (GI) or lung NET; and subependymal giant cell astrocytoma and renal angiomyolipoma associated with tuberous sclerosis complex.
Product Life Cycle Position: Marketed
Sales: Sales of Afinitor were $407 million in 4Q17, +4% y/y. The sales continue to grow despite competitive pressure in the breast cancer and renal cell carcinoma indications, which was offset by growth in the NET and tuberous sclerosis complex (TSC) indications. The Zacks Digest average 4Q17 Afinitor revenues were in line with the company’s report.
In Feb 2017, the European Commission approved Votubia dispersible tablets, as an adjunctive treatment for patients aged two years and older, whose refractory partial-onset seizures, with or without secondary generalization, is associated with tuberous sclerosis complex (TSC). This makes Votubia the first pharmacologic therapy to gain approval for refractory partial-onset seizures associated with TSC as well as the third TSC-related indication in the EU.
Additional Indications: Novartis is currently studying Afinitor in a phase III study for the treatment of TSC seizure (regulatory application submitted in the EU in 2Q16). In Aug 2016, Afinitor received Japanese approval for the treatment of NET.
|$ in million |2016A |2017A |2018E |2019E |Est. Growth (16-’19) |
Exjade/Jadenu (deferasirox)
Indication: Approved for chronic transfusional iron overload, and chronic iron overload in patients with non-transfusion-dependent thalassemia (NTDT). In Mar 2016, a new oral formulation was approved as Exjade film-coated tablet in the EU.
Product Life Cycle Position: Marketed
Sales: Exjade sales in 4Q17 were $281 million, up 16% y/y driven by continues growth in the United States.
|$ in million |2016A |2017A |2018E |2019E |Est. Growth (16-’19) |
Sandostatin/Sandostatin LAR (long acting version of Sandostatin)
Indication: Acromegaly; symptom of carcinoid syndrome associated with gastro-entero-pancreatic NET; Sandostatin LAR is approved for delaying tumor progression in patients with mid-gut tumors
Product Life Cycle Position: Marketed; generics available
Sales: In 4Q17, sales came in at $421 million, up 3% due to competitive pressure.
Patent: Sandostatin LAR patent is set to expire in 2017 in the U.S. and has already expired in Jul 2010 in key markets outside the U.S.
|$ in million |2016A |2017A |2018E |2019E |Est. Growth (16-’19) |
Jakavi/Jakafi (ruxolitinib)
Indication: Myelofibrosis (MF), polycythemia vera (PV) for those who have had an inadequate response to or are intolerant of hydroxyurea
Product Life Cycle Position: Marketed
Partner: Incyte Corporation. Novartis licensed Jakavi from Incyte Corporation for development and commercialization outside the U.S. In Apr 2016, Novartis amended its license agreement to include ex-US rights to Jakavi in graft-versus-host disease.
Sales: Jakavi sales in 4Q17 were $228 million, up 41% y/y on strong growth primarily driven by patient gains in the MF and PV indications.
|$ in million |2016A |2017A |2018E |2019E |Est. Growth (16-’19) |
Tafinlar + Mekinist (dabrafenib + trametinib)
Indication: Unresectable or metastatic melanoma with BRAF V600 mutation-positive.
Product Life Cycle Position: Approved both in the U.S. and the EU.
Regulatory Issues: The EC approved the combination of Tafinlar + Mekinist (dabrafenib/trametinib) for the treatment of adult patients with unresectable or metastatic melanoma with a BRAF V600 mutation. The FDA granted priority review for the combination in the same patient population. Tafinlar also enjoys Breakthrough Therapy designation for BRAF V600 mutation-positive non-small cell lung cancer (NSCLC).
Sales: Sales of the Tafinlar/Mekinist combination in 4Q17 were $246 million, up 33% driven by continued growth in the United States due to increased demand and new launches in Europe.
Additional Studies: Novartis is evaluating the combination in a phase III study for the treatment of BRAF V600+ melanoma. The combination is also in a phase I/II study for the treatment of BRAF V600+colorectal cancer.
In June 2017, the FDA approved Tafinlar in combination with Mekinist for the treatment of patients suffering from metastatic NSCLC whose tumors express the BRAF V600E mutation. The combination was granted Breakthrough Therapy designation in Jul 2015 for the treatment of advanced or metastatic BRAF V600E mutation-positive NSCLC patients who have received chemotherapy previously. 60% of treatment-naïve and previously treated patients with BRAF V600E mutant metastatic NSCLC responded to Tafinlar + Mekinist in a pivotal study. Tafinlar + Mekinist combination was approved by the European Commission (EC) in Mar 2017 for the treatment of patients with BRAF V600 advanced mutation-positive NSCLC. In Dec 2017, the FDA also accepted the supplemental New Drug Application (sNDA) for filing and granted Priority Review designation for Tafinlar in combination with Mekinist for the adjuvant treatment of patients with stage III melanoma with BRAF V600E or V600K mutations, as detected by an FDA-approved test, following complete resection.
|$ in million |2016A |2017A |2018E |2019E |Est. Growth (16-’19) |
Promacta/Revolade (eltrombopag)
Indication: Severe aplastic anemia (adults) and chronic immune thrombocytopenia purpura (ITP patients ≥6 years of age), hepatitis C virus (HCV)-related thrombocytopenia.
Product Life Cycle Position: Approved in the United States
Regulatory Issues: Promacta (EU trade name: Revolade) was approved in the EU in Sep 2015 for the treatment of adults suffering from severe aplastic anemia, who have responded insufficiently to immunosuppressive therapy, and are not eligible to receive a hematopoietic stem cell transplant.
On Aug 24, 2015, Novartis announced that the FDA expanded Promacta’s label to include children aged 1 year and above who are suffering from chronic immune thrombocytopenia and have had an insufficient response to corticosteroids, immunoglobulins or splenectomy. A new oral suspension formulation of Promacta is also approved per the updated label, which is designed for children unable to swallow tablets.
Sales: Promacta sales in 4Q17 were $255 million, up 43% y/y driven by continued worldwide uptake as well as growth of the thrombopoietin (TPO) class for chronic immune (idiopathic) thrombocytopenic purpura (ITP).
|$ in million |2016A |2017A |2018E |2019E |Est. Growth (16-’19) |
Zykadia (ceritinib/LDK378)
Indication: Anaplastic lymphoma kinase positive (ALK+) metastatic NSCLC in patients who have progressed on or are intolerant to Xalkori.
Product Life Cycle Position: Approved in the U.S., EU. In the U.S., it was granted accelerated approval for the treatment of patients with ALK+ metastatic NSCLC who have progressed on or are intolerant to crizotinib. The EC also provided conditional marketing authorization to Zykadia as a treatment for adult patients with ALK+ advanced NSCLC previously treated with crizotinib.
Partner: Novartis has an agreement with Bristol-Myers Squibb for evaluating the combination of Opdivo and Zykadia. Zykadia is approved in more than 60 countries.
Additional Study: Zykadia is being evaluated in a phase III study for the treatment of ALK+ advanced NSCLC. Results from the ASCEND-4 study on Zykadia in previously untreated adults with ALK+ NSCLC, demonstrated clinically significant improvement in progression-free survival (PFS) compared to standard chemotherapy, including maintenance. The drug is also in a phase II study for the treatment of ALK+ NSCLC (brain metastases).
In Feb 2017, Novartis announced that the FDA accepted its supplemental New Drug Application (sNDA) for filing, and granted Priority Review for the expanded use of Zykadia as a first-line treatment for patients with metastatic NSCLC whose tumors are ALK-positive as detected by an FDA-approved test. The FDA also granted Breakthrough Therapy designation to Zykadia for the first-line treatment of patients with ALK+ metastatic NSCLC with metastases to the brain.
In Jun 2017, Novartis announced that the European Commission approved Zykadia for the first-line treatment of patients with advanced NSCLC whose tumors are anaplastic lymphoma kinase (ALK)-positive.
An approval was on the cards as the Committee for Medicinal Products for Human Use (CHMP) had rendered a positive opinion on the same. The first-line approval of Zykadia is based on positive results from an open-label, randomized multicenter global phase III trial ASCEND-4. The results showed that the study met its primary endpoint and demonstrated a 45% reduction in the risk of disease progression in the Zykadia arm, compared with the chemotherapy arm. Patients treated with first-line Zykadia had a median progression-free survival (PFS) of 16.6 months compared with 8.1 months for patients treated with standard first-line pemetrexed-platinum chemotherapy with pemetrexed maintenance.
|$ in million |2016A |2017A |2018E |2019E |Est. Growth (16-’19) |
Farydak (Panobinostat/LBH589)
Indication: multiple myeloma
Product Life Cycle Position: Approved (carries a black box warning, alerting patients and health care professionals of severe diarrhea, and severe and fatal cardiac events, arrhythmias and electrocardiogram (ECG) changes)
On Sep 4, 2015, Novartis announced that Farydak (plus Velcade and dexamethasone) was approved in the EU for the treatment of relapsed and/or refractory multiple myeloma in patients who received at least two prior regimens including Velcade and an immunomodulatory agent (IMiD).
|$ in million |2016A |2017A |2018E |2019E |Est. Growth (16-’19) |
Arzerra (ofatumumab)
Indication: Relapsed chronic lymphocytic leukemia (CLL)
Product Life Cycle Position: Approved in the U.S.
Data: In Aug 2016, the FDA approved the company’s supplemental Biologics License Application (sBLA), for the use of Arzerra, in combination with fludarabine and cyclophosphamide, for the treatment of patients with relapsed chronic lymphocytic leukemia.
Additional Studies: Novartis is currently evaluating Arzerra in a phase III study for the treatment of Non-Hodgkin’s lymphoma.
Kisqali (ribociclib)
Indication: HR+/HER2 advanced or metastatic breast cancer
Product Life Cycle Position: Approved in the U.S. and the EU
The drug was approved and launched in March 2017 in the U.S. in combination with any approved aromatase inhibitor as initial endocrine-based therapy for the treatment of postmenopausal women with hormone receptor positive, (HR+/HER2-) advanced or metastatic breast cancer. Additionally, a regulatory application for Kisqali is currently under review in Europe and additional filings are underway with other health authorities worldwide. In Jun 2017, the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) gave a positive opinion recommending approval of Kisqali in combination with an aromatase inhibitor for treatment of postmenopausal women with HR+/HER2- locally advanced or metastatic breast cancer as initial endocrine-based therapy.
Earlier in 2017, Novartis announced positive data from the phase III study, MONALEESA-2 on Kisqali. The study reinforced the efficacy and safety of Kisqali plus letrozole in postmenopausal women with HR+/HER2- advanced or metastatic breast cancer. A median progression-free survival (PFS) of 25.3 months for Kisqali plus letrozole and 16.0 months for letrozole were observed after an additional 11 months of follow up. Moreover, after two years of treatment, the progression-free survival rate was 54.7% in the Kisqali plus letrozole arm compared with 35.9% in patients treated with letrozole alone. The data also showed that the safety profile of Kisqali plus letrozole remained consistent and the incidence of laboratory and electrocardiogram irregularities is similar to that observed at the first interim analysis. Meanwhile, Novartis continues to evaluate Kisqali in multiple trials, in combination with different hormonal therapies, across a broad range of patients.
Sales: Sales in 4Q17 came in at $35 million.
Kymriah
In Jan 2018, the FDA granted priority review to the company’s supplemental Biologics License Application (sBLA) for Kymriah suspension for intravenous infusion for the treatment of adult patients with relapsed or refractory (r/r) diffuse large B-cell lymphoma (DLBCL) who are ineligible for or relapse after autologous stem cell transplant (ASCT). for the treatment of adult patients with relapsed or refractory (r/r) diffuse large B-cell lymphoma (DLBCL) who are ineligible for or relapse after autologous stem cell transplant (ASCT).
Novartis Pharmaceuticals: Sales came in at $5.5 billion in 4Q17, up 6%.
Ophthalmology
Lucentis (ranibizumab)
Indication: Wet age-related macular degeneration (wet AMD), visual impairment due to diabetic macular edema (DME), macular edema following retinal vein occlusion (RVO), visual impairment due to choroidal neovascularization (CNV), secondary to pathologic myopia (myopic CNV)
Product Life Cycle: Marketed
Data: In Oct 2016, the CHMP rendered a positive opinion for the approval of Lucentis for the treatment of patients with visual impairment due to CNV associated with causes other than neovascular age-related macular degeneration or myopic CNV.
Sales: Lucentis sales in 4Q17 were $485 million, up 7% y/y driven by market expansion in Europe, Japan and Emerging Growth Markets. In December 2016, Lucentis was approved in Europe to treat patients for visual impairment due to CNV associated with causes other than neovascular age-related macular degeneration or myopic CNV. The Zacks Digest average 4Q17 Lucentis revenues were in line with the company’s report.
Partner: The drug was developed by Novartis in partnership with Roche. Roche holds the marketing rights in the United States.
Patents/Generics: Patent protection for Lucentis will end in Jan 2022 in the EU and in 2020 in Japan.
|$ in million |2016A |2017A |201E |2019E |Est. Growth (16-’19) |
Neuroscience
Gilenya (FTY720/fingolimod)
Indication: Relapsing forms of multiple sclerosis (RRMS).
Product Life Cycle Position: Marketed.
Safety Issues: The FDA approved Gilenya along with a Risk Evaluation and Mitigation Strategy (REMS), which informs patients and physicians on the safe use and risks associated with the drug.
Sales: Gilenya recorded revenues of $825 million in 4Q17, flat y/y. The Zacks Digest average 4Q17 Gilenya revenues were in line with the company’s report.
Competitors: Biogen’s Avonex, Tysabri and Tecfidera, Teva’s Copaxone, and Sanofi’s Aubagio among others.
|$ in million |2016A |2017A |2018E |2019E |Est. Growth (16-’19) |
Immunology & Dermatology
Ilaris (canakinumab)
Indication: Active systemic juvenile idiopathic arthritis (SJIR, 2 years and above), cryopyrin-associated periodic syndromes (CAPS, 4 years and above), symptomatic treatment of refractory acute gouty arthritis.
Product Life Cycle Position: Marketed.
Sales: Ilaris sales amounted to $115 million in 4Q17, up 51% y/y driven by demand in adults and children with CAPS. The drug is currently approved in more than 70 countries.
Patents/Generics: The patent for Ilaris is expected to expire in 2024 in both the United States and Europe.
Additional indication: In 2016, Ilaris was approved for patients with Adult-Onset Still’s Disease in Europe, and for three rare and distinct types of Periodic Fever Syndromes, also known as Hereditary Periodic Fevers, in the United States and Japan. The European Commission approved Ilaris for the same three Periodic Fever Syndromes in February 2017.
|$ in million |2016A |2017A |2018E |2019E |Est. Growth (16-’19) |
Certican/Zortress (everolimus)
Indication: Prevention of organ rejection (heart and kidney).
Product Life Cycle Position: Marketed.
Sales: Certican/Zortress sales in 4Q17 were $116 million, up 8% y/y driven by strong growth.
|$ in million |2016A |2017A |2018E |2019E |Est. Growth (16-’19) |
Cosentyx (Secukinumab)
Indication: Moderate-to-severe plaque psoriasis for systemic therapy or phototherapy patients (in the U.S.) and systemic therapy patients in the EU and the United States.
Product Life Cycle Position: Approved.
Sales: Cosentyx sales were $615 million in 4Q17, up 53% driven by strong growth across all indications.
Additional indications: The Cosentyx EU label was updated to include difficult-to-treat areas palmoplantar, nail and scalp PsO.
In Feb 2018, Novartis announced today that the FDA has approved a label update for Cosentyx, the first interleukin-17A (IL-17A) inhibitor approved to treat moderate-to-severe plaque psoriasis. The updated label includes Cosentyx data in moderate-to-severe scalp psoriasis.
|$ in million |2016A |2017A |2018E |2019E |Est. Growth (16-’19) |
Respiratory
Xolair (omalizumab)
Indication: Allergic asthma; chronic idiopathic urticaria/chronic spontaneous urticaria (CIU/CSU) in adults and adolescents (12 years and above) with inadequate response to H1-antihistamine treatment. (CIU is known as CSU outside the U.S.)
Product Life Cycle Position: Marketed
Partners: In the U.S., Novartis co-promotes Xolair with Roche and shares a portion of the operating income. Novartis does not book any U.S. sales.
Sales: Xolair sales in 4Q17 were $247 million, up 14%. Xolair is currently approved in more than 90 countries and has a strong presence in Japan, Canada and the Latin America. In July 2016, the FDA approved the drug for the treatment of moderate-to-severe asthma in the age group of 6-11 years with moderate-to-severe persistent asthma.
Xolair Liquid, a formulation in pre-filled syringes to ease administration, continues to be rolled out across Europe.
Competitors: Glaxo’s Advair and Merck’s Singulair.
Patents/Generics: Patent protection for Xolair will expire in 2018 and 2017 in the United States and Europe respectively.
|$ in million |2016A |2017A |2018E |2019E |Est. Growth (16-’19) |
Arcapta Neohaler/Onbrez Breezhaler (indacaterol)
Indication: Chronic obstructive pulmonary disease (COPD).
Product Life Cycle Position: Marketed.
Partner: Eisai Co Ltd.
Sales: Sales of Arcapta Neohaler/Onbrez Breezhaler were $29 million in 4Q17, down 19% y/y due to focus on Ultibro.
Seebri Breezhaler (LAMA) inhaler
Indication: Treatment of adults suffering from COPD
Product Life Cycle Position: Approved in the EU and Japan; Filed for approval in the U.S. in Dec 2014.
Sales: Seebri Breezhaler sales in 4Q17 were $42 million, up 11% y/y.
|$ in million |2016A |2017E |2018E |2019E |Est. Growth (16-’19) |
Ultibro Breezhaler
Indication: Treatment of adults suffering from COPD.
Product Life Cycle Position: Approved in the EU and Japan. It was approved in Oct 2015 in the U.S. as a twice-daily dual combination of indacaterol and glycopyrrolate for the long-term maintenance treatment of airflow obstruction in patients with COPD, including chronic bronchitis and/or emphysema.
Sales: Ultibro Breezhaler sales in 4Q17 were $120 million, up 26% y/y propelled by the FLAME study positive results and the GOLD guidelines, which recommended LABA/LAMA as the preferred option in the majority of symptomatic patients regardless of their exacerbation risk. The GOLD guidelines also recommended LABA/LAMA as the preferred option in the majority of symptomatic patients regardless of their exacerbation risk.
Additional Studies: In Sep 2016, Novartis announced positive results from a head-to-head study, FLAME, on Ultibro Breezhaler at the 2016 European Respiratory Society (ERS) International Congress. The randomized, double-blinded, double-dummy, parallel-group, non-inferiority, active-controlled, 52-week study affirmed that Ultibro Breezhaler is a more effective option for patients at the risk of COPD flare-ups (exacerbations) than Seretide.
|$ in million |2016A |2017E |2018E |2019E |Est. Growth (16-’19) |
Cardio-Metabolic
Entresto (sacubitril/valsartan)
Indication: Chronic heart failure with reduced ejection fraction.
Product Life Cycle Position: Approved in the U.S in July 2015.
Sales: Entresto sales were $185 million in 4Q17, up 172% y/y driven by growing adoption by physicians in the United States and Europe, and continued market access improvements. Sales benefited from the strong Class 1 recommendation in both the Unites States and EU heart failure treatment guidelines, as well as the continued field force expansion in the United States reaching more primary care physicians.
In Mar 2017, Novartis announced results of a new post-hoc analysis from the PARADIGM-HF study on Entresto in a subgroup of patients with reduced ejection fraction heart failure (HFrEF) and diabetes. The data indicated that Entresto tablets improved glycemic control, as assessed by hemoglobin A1c (HbA1c) testing, compared to ACE-inhibitor enalapril. Entresto lowered HbA1c levels after one year of treatment for HF, and this effect was sustained over three years of study follow-up. The data was presented today at the American College of Cardiology (ACC) 66th Annual Scientific Session & Expo in Washington, D.C. and published in The Lancet Diabetes & Endocrinology. The new use of insulin was also reduced by 29% among patients taking Entresto compared to enalapril-treated patients. Moreover, up to 40% of HFrEF patients have been diagnosed with diabetes, which is associated with worse cardiovascular outcomes.
On May 21, 2016, Novartis announced that Entresto was given a class I recommendation, as per the updated clinical practice guidelines released simultaneously by the American College of Cardiology (ACC), the American Heart Association (AHA) and the Heart Failure Society of America (HFSA), as well as the European Society of Cardiology. Consequently, Entresto is now a standard therapy for heart failure with reduced ejection fraction (HFrEF) in the U.S. as an alternative to an ACE inhibitor or an angiotensin II receptor blocker (ARB). Moreover, doctors can switch HFrEF patients with mild-to-moderate symptoms from ACEs or ARBs to Entresto as per the latest guidelines.
The company also announced the FortiHFy program on Entresto. The study includes two large phase III outcomes studies to support new indications for Entresto in heart failure with preserved ejection fraction (HFpEF) (PARAGON-HF), and the prevention of heart failure and cardiovascular death post-acute myocardial infarction (HF post-MI) (PARADISE-MI).
Established Medicines
Diovan (valsartan)/Diovan HCT
Indication: Heart failure, hypertension, post-myocardial infarction.
Product Life Cycle Position: Marketed; generics available.
Sales: Diovan sales were $244 million in 4Q17, down 5% y/y. Sales were hurt by loss of exclusivity in the United States, the EU and Japan. The Zacks Digest average revenues for 4Q17 were in line with the company’s report.
|$ in million |2016A |2017A |2018E |2019E |Est. Growth (16-’19) |
Exelon/Exelon Patch
Indication: Alzheimer’s disease dementia (AD) and dementia associated with Parkinson's disease; also available as Exelon Patch – the transdermal form of the medicine.
Product Life Cycle Position: Marketed.
Sales: Exelon sales in 4Q17 were $88 million, down 24% y/y due to generic competition in the EU and the United States. The Zacks Digest average 4Q17 Exelon revenues were in line with the company’s report.
|$ in million |2016A |2017A |2018E |2019E |Est. Growth (16-’19) |
Collaborations: Novartis formed a partnership with Amgen to advance its neuroscience pipeline. As per the agreement, Novartis and Amgen will co-develop and co-commercialize a BACE inhibitor program for Alzheimer’s disease using Novartis’ oral therapy, CNP520, as the lead molecule. Novartis and Amgen also plan to co-develop Amgen's migraine portfolio, including human monoclonal antibody, AMG 334. Novartis currently holds commercialization rights for the migraine portfolio outside the U.S., Canada and Japan.
Exforge/Exforge HCT (amlodipine and valsartan)
Indication: Single-pill combination of Diovan and amlodipine for the treatment of hypertension.
Product Life Cycle Position: Marketed
Exforge HCT is the first modern triple hypertension medication, combining three high blood pressure treatments: Diovan, amlodipine and hydrochlorothiazide.
Sales: Sales in 4Q17 were up 1% y/y to $249 million despite the entry of generics in the United States and Japan. The drug also lost exclusivity in Europe in January 2017.
Patents: Exforge is facing generic competition in the U.S. since 2014.
Galvus/Eucreas (LAF 237/vildagliptin)
Indication: Type II diabetes; Eucreas is an oral tablet that combines Galvus and metformin.
Product Life Cycle Position: Marketed.
Sales: Galvus/Eucreas sales in 4Q17 were $327 million, +10% y/y.
Competitors: Bristol-Myers Squibbs’ Bydureon, Novo Nordisk’s Victoza and Merck’s Januvia.
|$ in million |2016A |2017A |2018E |2019E |Est. Growth (16-’19) |
Collaborations:
In Apr 2018, Novartis announced that it will acquire AveXis, Inc. a clinical stage gene therapy company for $8.7 billion in cash. AveXis lead product candidate, AVXS-101, has potential to be first-ever one-time gene replacement therapy for spinal muscular atrophy (SMA). The FDA has granted AVXS-101 Orphan Drug designation for the treatment of SMA as well as Breakthrough Therapy designation for SMA Type 1. A BLA filing with the FDA for AVXS-101 is expected in the second half of 2018 and approval and launch in the US is expected in 2019.
In Mar 2018, Novartis announced that it has entered into an agreement with GlaxoSmithKline plc to divest its 36.5% in its consumer healthcare joint venture (JV) for $13.0 billion. The sale will enable Novartis to further focus on the development and growth of its core businesses.
In Mar 2018, Novartis entered into a collaboration with Pear Therapeutics to develop novel prescription digital therapeutics, software applications designed to effectively treat disease and improve clinical outcomes for patients. The collaboration combines Novartis' leadership in biomedical research and clinical development with Pear's expertise in digital therapeutics.
In Feb 2018, Novartis announced the completion of the subsequent offering period of the tender offer by its subsidiary, Novartis Groupe France S.A., to purchase all of the outstanding ordinary shares of Advanced Accelerator Applications S.A. at a price of $41.00. In Jan 2018,
Novartis announced that Advanced Accelerator Applications has obtained FDA approval its new drug application (NDA) for Lutathera for the treatment of somatostatin receptor positive gastroenteropancreatic neuroendocrine tumors (GEP-NETs), including foregut, midgut, and hindgut neuroendocrine tumors, in adults. Lutathera is a first-in-class drug and the first available FDA-approved Peptide Receptor Radionuclide Therapy (PRRT), a form of treatment comprising of a targeting molecule that carries a radioactive component.
In Jan 2018, Novartis announced a licensing agreement with Spark Therapeutics covering development, registration and commercialization rights to voretigene neparvovec in markets outside the United States. Voretigene neparvovec, is marketed as Luxturna (voretigene neparvovec-rzyl) in the United States obtained FDA approval in Dec 2017 as a one-time gene therapy to restore functional vision in children and adult patients with biallelic mutations of the RPE65 (retinal pigment epithelial 65 kDa protein) gene.
ALCON
In early Apr 2011, Novartis completed the merger with Alcon following which Alcon became the second- largest division within Novartis. Alcon researches, discovers, develops, manufactures, distributes and sells eye care products.
Sales: The Alcon division recorded revenues of $1.6 billion in 4Q17, up 6% y/y. Surgical sales (up 9%) with growth in cataract consumables and intraocular lenses. Vision Care revenues were up 2% on the back
continued double-digit growth of Dailies Total1, partly offset by declines in the weekly/monthly portfolioof growth in contact lenses sales.
In Mar 2016, Alcon acquired U.S. based privately held Transcend Medical, Inc., which focuses on developing minimally-invasive surgical devices to treat glaucoma. The company has developed a micro-stent to treat mild-to-moderate glaucoma which is implanted just below the surface of the eye.
|$ in million |2016A |2017E |2018E |2019E |Est. Growth (16-’19) |
SANDOZ (GENERIC DIVISION)
Sandoz is one of the largest generic pharmaceutical companies worldwide. It develops, manufactures and markets generic pharmaceutical products, anti-infectives, biopharmaceuticals and oncology injectables. Sandoz holds a leading position in the biosimilars space with a portfolio of five marketed biosimilars currently and a deep pipeline.
Sales: Sales amounted to $2.6 billion in 4Q17, down 4% y/y due to price erosion. Sales from the Biopharmaceuticals segment which includes biosimilars, biopharmaceutical contract manufacturing and Glatopa, grew 6% to $309 million driven by strong performance of Zarxio (filgrastim) and Glatopa 20mg (glatiramer acetate) in the United States. The Zacks Digest average revenues for 4Q17 were in line with the company’s report.
Sandoz markets five products. The marketed biosimilars include — Omnitrope, a human growth hormone; Binocrit, an erythropoiesis-stimulating agent used to treat anemia; filgrastim for neutropenia under the brand names Zarzio outside the United States and Zarxio in the United States; Rixathon (biosimilar rituximab), approved in Europe in 2017 to treat blood cancers and immunological diseases (also approved in the EU as Riximyo under a duplicate marketing authorization); and Erelzi (biosimilar etanercept), approved in Europe in 2017 to treat multiple inflammatory diseases. The FDA also approved biosimilar Erelzi in 2016. However, the launch is pending in the United States due to an ongoing litigation with Amgen. The company has also filed for approval of a biosimilar of adalimumab and pegfilgrastim in the EU.
Additional Studies:
Sandoz is conducting phase III study for its biosimilar version of Biogen/Roche’s cancer drug Rituxan (rituximab) in first line follicular lymphoma. Patient enrollment in this study is complete. A phase II study is also ongoing in rheumatoid arthritis (RA) patients.
In Mar 2018, Novartis announced that the Committee for Medicinal Products for Human Use (“CHMP”) of the European Medicines Agency (“EMA”) adopted a positive opinion for the marketing authorization of the proposed biosimilar of Johnson & Johnson’s Remicade (infliximab). The CHMP recommended the approval of the biosimilar for all the indications of the branded drug across gastroenterology, rheumatology and dermatology. We note that Remicade is approved to treat Crohn's Disease in adults and children, ulcerative colitis, rheumatoid arthritis and psoriatic arthritis, ankylosing spondylitis and plaque psoriasis.
In Feb 2018, Sandoz announced the FDA approval and launch of Glatopa (glatiramer acetate injection) 40 mg/mL. Glatopa (glatiramer acetate injection) 40 mg/mL is FDA-approved as a fully-substitutable, AP-rated generic version of Copaxone (glatiramer acetate injection) 40 mg/mL three times-a-week therapy for relapsing forms of multiple sclerosis (MS).
In Jan 2018, the FDA accepted its Biologics License Application (BLA) for the proposed biosimilar of Humira. The biosimilar version of Humira is also under review in the EU. The biosimilar version of rituximab, Rixathon, was approved by the European Commission in June 2017. It is currently under review in the United States.
In Dec 2017, Novartis announced data demonstrating the pharmacokinetics (PK), pharmacodynamics (PD), safety and immunogenicity of proposed biosimilar pegfilgrastim as compared to the reference biologic, Neulasta. The study, conducted in healthy volunteers, confirmed that biosimilar pegfilgrastim matches the reference biologic in terms of PK, PD, safety and immunogenicity profiles. The biosimilar is currently under review by the European Medicines Agency (EMA) for use in the same indication as the reference biologic.
In Jun 2017, Novartis announced that the European Commission (EC) has approved Erelzi – the biosimilar version of Amgen’s Enbrel. Erelzi is approved for use in all indications of the branded drug like rheumatoid arthritis, axial spondyloarthritis (ankylosing spondylitis and non-radiographic axial spondyloarthritis), plaque psoriasis, and psoriatic arthritis as well as juvenile idiopathic arthritis and pediatric plaque psoriasis. In Aug 2016, Sandoz obtained FDA approval for Erelzi, the biosimilar version of Enbrel. The FDA has approved Erelzi for all indications stated in Enbrel’s label – RA, psoriatic psoriasis, PsA, AS and polyarticular juvenile idiopathic arthritis (JIA).
In Jun 2017, Sandoz, received EC approval for Rixathon, a biosimilar version of Roche’s MabThera in Europe. The biosimilar version has been approved for all the indications of the branded drug. Rixathon is approved for non-Hodgkin's lymphoma (follicular lymphoma and diffuse large B-cell lymphoma) and chronic lymphocytic leukemia, as well as immunological diseases such as rheumatoid arthritis, granulomatosis with polyangiitis, and microscopic polyangiitis.
In Jun 2017, the FDA accepted Sandoz’s Abbreviated New Drug Application (ANDA) for a generic version of GlaxoSmithKline’s asthma drug, Advair Diskus. Sandoz gaining additional expertise in the development of orally inhaled medicines through its 2010 acquisition of Oriel Therapeutics, Inc. Upon approval, the generic drug will treat asthma in patients aged four years and older, as well as provide maintenance treatment of airflow obstruction and reducing exacerbations in patients with chronic obstructive pulmonary disease (COPD).
|$ in million |2016A |2017E |2018E |2019E |Est. Growth (16-’19) |
Please refer to the Zacks Digest spreadsheet of NVS for further details on revenue.
Margins
Operating income, excluding extraordinary items and amortization of intangible assets, was $2.1 billion in 4Q17, up 41% in constant currency.
|Margins |4Q16A |
|Copy Editor |Shremoyee Mandal |
|Content Editor |Ekta Bagri |
|Lead Analyst |Ekta Bagri |
|Last Updated By |Ekta Bagri |
|QCA |Kinjel Shah |
|Reason for Update |3Q17 Earnings |
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