Yahoo Finance Novartis AG (NYSE:NVS) Q1 2024 Earnings Call Transcript
Novartis AG (NYSE:NVS) Q1 2024 Earnings Call Transcript April 23, 2024
Novartis AG isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning and good afternoon, and welcome to the Novartis Q1 2024 Results Release Conference Call and Live Webcast. Please note that during the presentation, all participants will be in a listen-only mode, and the conference is being recorded. [Operator Instructions] A recording of the conference call, including the Q&A session, will be available on our website shortly after the call ends. With that, I would like to hand over to Ms. Sloan Simpson, Head of Investor Relations. Please go ahead, madam.
Sloan Simpson: Thank you so much, operator. Good morning and good afternoon, everyone. Thank you for joining our first quarter 2024 earnings call. The information presented today contains forward-looking statements that involve known and unknown risks, uncertainties and other factors. These may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. For a description of some of these factors, please refer to the company's Form 20-F and its most recent quarterly results on Form 6-K that respectively were filed with and furnished to the U.S. Securities and Exchange Commission. And with that, I will hand across to Vas.
Vas Narasimhan: Thank you, Sloan. I'd like to open today's call by first thanking Samir Shah for his incredible tenure as our Head of Investor Relations for over a decade. We're grateful for all of his contributions. We look forward to his continued contributions in a new role at Novartis. And I want to welcome Sloan Simpson. I think Sloan will do an absolutely outstanding job serving all of you as our Head of Investor Relations. I've worked with her for many, many years. I think we're really pleased and grateful to have her on board. So, let's turn to the quarter. Novartis delivered a really strong start to the year with double-digit sales growth, core margin expansion, which enabled us to upgrade our guidance, and Harry will go through the guidance in more detail.
Sales were up 11% in constant currencies, core operating income was up 22%, our core margin reached 38.4% as we steadily march to our goal of 40%-plus by 2027. In addition, we had a number of important innovation milestones in the quarter, which I'll go through over the course of the call. But a few I'd want to particularly highlight the Fabhalta positive opinion enabled us to launch Fabhalta in Europe. Scemblix first line readout, we think will be very important for a major medicine for the company. And we also had the updated PSMAfore OS results, which will enable us now to move forward with the filing of Pluvicto in the United States. Now, moving to Slide 5. Now, our growth in the quarter was broad based, and we had strong contributions from many of our key growth drivers, including Entresto, Kesimpta, Cosentyx, which had a very strong quarter, as well as Kisqali.
I would also say geographically, our performance was broad based, with strong growth across U.S., Europe, China with very strong growth, and Japan. As you can see on the chart, the strong growth was indicated by 41% constant currency growth, and we expect this growth to continue over the course of the year, which is what gives us confidence to do the upgraded guidance that we've outlined this morning. Now, moving to Slide 6, and we'll walk through the brands one by one as we always do. First, with Entresto, we had double-digit growth, up 36% in quarter one. That was again geographically broad based, U.S. and ex U.S. In the U.S. our weekly TRx continue to reach new highs. We have 38% constant currency growth outside of the U.S. And we continue to see momentum for this brand.
We're in a strong guideline position both in the U.S. and in Europe. We have further penetration opportunities in heart failure globally, and in specifically in hypertension in China, in Japan. And in Japan, we have protection into the early 2030s with this medicine. For forecasting purposes, no change in our Entresto LoE outlook, continue to guide to a mid-2025 LoE while continuing to aggressively defend our, various patents. And then, in terms of the EU, we continue to guide to RDP in November 2026, benefiting from our pediatric extension. Now moving to Slide 7, Cosentyx grew 25% in the quarter, and I think really got back to the dynamic growth we expect from this medicine. This was fueled both by our core indications, but also some strong launches, and I'll go through that in a bit more detail.
U.S. was up 25% in constant currencies, ex U.S. 24%. We had highly -- we were highly competitive in our core indications, and so we saw return to market share improvement in psoriasis and in the rheumatology indications both in the U.S. and in Europe. And we're now the leading originator biologic in the IL-17 class in EU and China. Now, in terms of our new launches, we saw very strong performance in HS, hidradenitis suppurativa, where we have over 50% now NBRx share versus adalimumab in U.S. and Germany. When we compare our launch on a comparable basis to the adalimumab launch in this indication, we currently see ourselves at nearly 3 times the performance of that previous launch. I think really highlighting how strong the uptake for Cosentyx has been in this new indication.
We also had very strong performance in the intravenous indication ahead of the J-code, which we expect in July. I think again that indicates there is strong interest in having an IV option for patients with Cosentyx in the rheumatology indications. So, we'll look forward to further acceleration in the back half of the year once we have that J-code in place. Now, moving to Slide 8, Kesimpta delivered 66% growth on the quarter, and this was again global U.S. and ex U.S. driven. We have over 100,000 patients treated worldwide on the medicine and the majority of these patients are either naive or first switch, which reflects the strategy we have for this brand. In the U.S., we saw a very strong demand-driven growth with NBRx volume at plus-26% versus prior quarter.
And one of our key priorities now in the U.S. is to increase our B-cell market share over the coming quarters. Outside of the U.S., we have leadership now in seven out of 10 major markets and we look forward to continuing to drive the convenience and high efficacy story that Kesimpta presents in these markets. In the quarter as well, we announced the ALITHIOS six-year long-term data, which demonstrated sustained efficacy and the consistent safety profile for Kesimpta. In this study, nine out of 10 patients were free on the NEDA-3 score of disease activity. And we also saw treatment-naive patients derive substantial benefits, across multiple markers of disease activity. So, even in the face of some competitor launches, we feel very confident about the one minute a month self-administered dosing, high efficacy, strong safety profile of Kesimpta.
Now, moving to Slide 9, Kisqali grew 54% in metastatic breast cancer with now continued leading share in new patient starts. U.S. was up 72%. And I think there's increasing recognition of the unique profile that Kisqali offers given its broad data set of OS across three different studies in metastatic breast cancer. We have leading NBRx share at 45%, and we see a steady growth in writers, we're also working to increase depth, as well as improve our market access position across key accounts ahead of the early breast cancer launch. Now, outside of the United States, 39% growth. We're the fastest growing CDK4/6 in Europe and a market leader in the pre-menopausal indication. We also successfully entered the NRDL list in China in quarter one. And its early days in China, but given the strength of our China operations, we're hopeful we can drive dynamic growth for Kisqali in China over time.
The regulatory review in early breast cancer is ongoing. We're filed in the U.S. and EU, and currently expect regulatory review to proceed as planned. Our manufacturing adjustments, which we disclosed a few weeks ago, are on track to ensure alignment with latest regulatory standards in early breast cancer by the end of Q2, and we continue to expect to be able to launch this medicine in the second half of this year. Now, moving to Slide 10, Pluvicto had strong growth of 47% in the quarter, driven by new patient starts and very early beginnings of growth as well outside of the U.S. We have 400 treatment sites now up and running in the U.S., on steady progress to our goal to get well over 500 sites fully certified for the use of Pluvicto. Also, our supply performance is now consistently at a very high level with over 99.5% of injections administered on the planned day.
So, ample supply, Indianapolis facility up and running, continued expansion of our manufacturing network. So, we really feel like we're now in a position to fully supply the market consistently globally, in -- for this medicine. Now, over the course of 2024, we're going to focus on share expansion within existing sites and particularly expanding referral network of medical oncologists who can refer into a Pluvicto treating center. We feel like this will be the key now in the post-taxane setting. We also want to build our business outside of the United States with some important launches in Europe as we also build towards launches -- planned launches Japan and China, both countries where we have planned new manufacturing facilities to support the Pluvicto and Lutathera business.
Our existing indications are also on track. We announced earlier this quarter that the PSMAfore submission enabling OS readout was achieved and this will put us in a position to file Pluvicto early in the second half, so a mid-year filing for this medicine. And then, PSMAddition also on track as well as the PSMA delayed castration localized oligometastatic program as well. Now, a little more detail on the PSMAfore submission enabling OS readout. We had a primary endpoint that we read out last year where we met the primary endpoints as well as really strong data across all of the secondary and exploratory endpoints, a very impressive relative risk reduction for rPFS, strong profile across the patient reported outcomes, as well as the various response ORR, DCR and DOR.
What we announced earlier in the quarter was the updated third interim, which gave us a higher proportion of OS events. The OS hazard ratio was less than 1, which puts us in a position to file mid-year and other secondary endpoints were consistent with the previous results as was the rPFS. And what we feel and see is with the additional eight months of follow-up, we have high confidence in the safety profile of Pluvicto. And so, these results will be presented at an upcoming medical congress, and of , we're working as quickly as we can to get this file in. Now, moving to Slide 12, Leqvio also had a really strong quarter. Adoption expanded steadily in the U.S,, but also outside of the United States. As you can see here on the left hand chart, very strong performance both in the U.S. and outside the U.S. Taking the U.S. first, we had growth outpacing the advanced lipid-lowering market.
We have now nearly 3,900 facilities that are ordering Leqvio, increased breadth and depth across our key accounts. We continue to see buy and bill as the key driver overall of the business, but we do see also the use of other channels as well. Outside of the U.S., we have a consistent rollout now. We have 29 countries where Leqvio is publicly reimbursed and an additional 39 with private commercial coverage. This puts us in a strong position with our top three European markets contributing 50% of international sales, but really strong growth across the international region. And strong early uptake in China in the self-pay setting with over 200 new patients a day ahead of our planned NRDL listing in the first half -- first part of next year. Lastly, we had new data at ACC and a publication as well, which supported the early initiation of Leqvio, demonstrating that starting Leqvio early in patients requiring secondary prevention for cardiovascular event allowed these patients to achieve their LDL-C goals earlier.
Now, moving to the next slide, Slide 14, Scemblix grew 83% in the quarter, again, primarily driven by the third line indication with our first line submission on track to be completed in the coming months. We had continued momentum in the core third line indication over 40% NBRx share. Outside of the U.S., we're at a 32% total market share, driven by our key markets, Japan, France and Germany. And here in the third line setting, we primarily focus on early identification of patients who could benefit from a switch to Scemblix post two TKIs. As a reminder, our ASC4FIRST study enabled first in line submission -- first line submission in half one. Primary endpoints were met versus all standard of care TKI and -- versus Gleevec as well, favorable safety and tolerability profile.
And we can confirm that the full data will be presented at ASCO in 2024. Now turning to Fabhalta, we're at the early stages of the PNH launch, and we didn't expect really to see significant sales at this very early stage given the complexity of this launch, but we are very pleased with the early launch indicators. We've had a rapid increase in the number of HCPs who are certified under the REMS program. An increase in new writers and patient starts, which are exceeding our internal expectations. We see uptake across naive and switch patients for this medicine. And we also are really happy to see HCPs willing to work through the medical exception process to get patients on this medicine. So, we also have the positive CHMP opinion for PNH, and we expect that full approval to happen in the coming few months.
And we'll consistently work to launch this medicine across the globe as well as drive rapid uptake in the United States. Now, turning to Slide 15, we also announced our Phase 3 APPLAUSE-IgAN study full results earlier in the quarter where we demonstrated 38% proteinuria reduction relative to placebo. In this study, we randomized patients to iptacopan versus placebo. The results we read out was the nine month interim proteinuria analysis. These patients will be continued to be followed out to month 24 for the full eGFR analysis. You can see on the right-hand panel, very impressive proteinuria reduction of 43.8% versus placebo at 9%, clinically meaningful and statistically significant. We know that complement activation is a key driver of inflammation in IgAN.
And importantly, the overall safety profile was consistent with data we previously reported. We've submitted this data to FDA, and just one clarification, we did not use a priority review voucher for this medicine. The FDA had granted us priority review based on the dataset that we provided. So, this study continues as well for its eGFR readout in 2025, and we look forward to really getting a full approval very shortly -- or getting the initial approval in the coming period. Moving to Slide 16, Remibrutinib demonstrated -- had already demonstrated in an earlier study at 12 weeks robust efficacy and safety, but we needed to wait for the 52 week data to be in a position to file in chronic spontaneous urticaria. And this data came out positive, enabling us now to move forward towards this important filing.
As a reminder, there's about 400,000 CSU patients in the U.S. not controlled or refractory to antihistamines. And only less than 20% of these patients are currently on biologics. So, there's a large opportunity for a high efficacy oral medicine. The previous primary endpoint data at week 12 is shown here, where we very consistently showed improvements versus placebo at week 12 on the UAS7 score. And so, we'll look forward to presenting the full dataset in the second quarter for this medicine out to 52 weeks. And with the consistent favorable safety profile we've demonstrated with overall rates of AE comparable to placebo and balanced liver function test, as well as the clear efficacy data, we'll look forward to global submissions in the second half of Remibrutinib.
So, all taken together, we're on track across our innovation goals for the year. I did want to highlight that we have shifted our iptacopan C3G U.S. submission to the second half. There is no great correlate for efficacy in C3G given the ultra-rare nature of this disease. We provided the FDA our six-month data. While certainly we believe that six-month data was very compelling, the FDA wanted to see the additional six-month follow-up for these patients after all patients had rolled over onto active. The first six-month period was randomized, second six-month period, all patients are inactive. So, we will complete that six-month follow-up and then file in the second half, and we remain very excited about the opportunity to bring Fabhalta as well to patients with C3G.
So, moving to the next slide, we also are on track for our range of submissions, '24, '25 and '26 to '28. So, we'll continue to keep you abreast of how datasets unfold as well as potential readout timelines, as we understand those readouts timelines better, and really excited about the catalyst-rich profile that we have out through the coming years. So, moving to Slide 19, I'll hand it over to Harry.
Harry Kirsch: Yeah, thank you very much, Vas. Good morning, good afternoon, everyone. And I'm going to walk you through some of the financials for the first quarter. And as always, my comments refer to growth rates in constant currencies, unless otherwise noted. Also throughout the presentation, I refer to continuing operations. And as you see from the numbers, it has been a very strong start to the year. So, on Slide 20, you'll see a summary of our financial performance, with net sales up 11% and core operating income up 22%. Our core margin grew 340 basis points to reach 38.4%, showing that we are very well on track to achieve our mid-term margin guidance of 40%-plus by 2027. Core EPS was $1.80 for the first quarter, growing 23%, a bit ahead of [indiscernible] to the share buyback program.
Free cash flow was $2 billion, declining versus quarter one of 2023, but that was due to a prior year one-timer and the timing of some tax payments this year. However, and importantly, for the full year 2024, free cash flow is expected to grow approximately in line with core operating income. So, in summary, very strong start to the year, as our efforts to focus and streamline the business continue to pay off. This brings us already to our full year guidance on Slide 21. So, the strong momentum in our business across our in-market growth brands and launches both in U.S. and international markets give us the confidence to upgrade both top- and bottom-line guidance. We have also a favorable update on generic entry assumption in U.S., but that's actually a smaller element of the analysis driving our 2024 guidance upgrade.
We now expect net sales to grow in the range of high-single digit to low-double digit, and core operating income to grow in the range of low-double digit to mid-teens. Underpinning our guidance are two key assumptions that no Entresto and no Promacta generics will launch in 2024 in U.S. And to complete our 2024 full year guidance, please know that we continue to expect core net financial expenses to be in the range of $0.6 billion to $0.7 billion, and our core tax rate to be around 16.5%. Now, moving to Slide 22, I'm very pleased with the quality of our quarter one sales growth, driven by our key in-market brands, which grew, as Vas showed also on the prior slide, 41% in the quarter. And the vast majority of these brands still have many years of patent protection ahead of them.
So, their continued momentum strongly supports our mid-term growth outlook of 5% CAGR through 2028. Slide 23 please. Just to highlight that we continued our shareholder-friendly capital allocation strategy in quarter one, of course, investing in the business alongside returning capital to shareholders. Notably, in Q1, we announced two value-creating bolt-ons in our core therapeutic areas, the proposed acquisition of MorphoSys and the licensing deal of Arvinas, both of which align with our strategic focus in oncology. In terms of returning capital to our shareholders, we paid $7.6 billion of our growing dividend in quarter one, and we also continue our up to $15 billion share buyback program, and we still have $11.7 billion remaining to be executed by the end of 2025.
All right, to my final Slide 24, we have outlined some of the details regarding the FX impacts. And as you see, in quarter one, FX had a 1% negative impact on sales and 6 points negative on core operating income, the latter driven by the strong Swiss francs. And if late April rates prevail, including the most recent strengthening of the U.S. dollar, we expect the full year impact of currency still to be less than it was in '23, on the top-line, negative 2%, bottom-line, negative 4%. As a reminder, as this is hard to forecast from the outside and moving all the time, we are updating our -- the expected FX impact on our website on a monthly basis. And with that, I hand back to Vas.
Vas Narasimhan: Great. Thanks, Harry. So, as you heard, a strong start to the year with double-digit sales growth, strong core margin expansion, and with the strong momentum we see in the business, we're able to raise our guidance for the year. We saw this momentum across all of our key growth brands and across geographies, I think indicating the high quality of the performance that we're seeing in the company. Our pipeline continued to advance with multiple submissions and submission enabling readouts as we outlined, and we continue to have confidence in our mid-term guidance of 5% constant currency sales growth '23 to '28, and 40%-plus core operating income margin by 2027. So, with that, I'll hand it back to Sloan, who will outline some of our upcoming investor events.
Sloan Simpson: Thank you, Vas. Before we open up for questions, I just wanted to flag a few investor events that we're planning to hold this year. First, we'll have an in-person event at ASCO in Chicago on June 2, highlighting the Scemblix ASC4FIRST data, which Vas mentioned. We'll also have a virtual event on our renal pipeline in the second half of the year. And we'll be having our annual Meet Novartis Management event in London on November 20 to 21. We hope to see many of you at these events. And with that, operator, let's open the line for questions, please.
Operator: Thank you. [Operator Instructions]
Vas Narasimhan: And one thing, operator, can we just ask each participant to limit themselves to one question, and then they'll go back through the queue?
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