Should You Pick Up Novartis (NVS) Before Q2 Earnings?

Novartis AG NVS gained 1.1% so far in trading this week. Plus, the Swiss multinational pharmaceutical company has been on a tear since the end of April, up 18.2%. Now let’s see what investors should expect heading into its Q2 2019 earnings release on Thursday.

Overview

Novartis’ most widely used products are Gleevec, Diovan, and Lucentis, along with popular over-the-counter drugs Excedrin and Theraflu. Novartis has a market cap of $202.33 billion and held 5.44% of the global pharmaceutical market in 2018, making it the second-largest pharmaceutical company in the world after Pfizer PFE.

The company recently spun off its eye care business Alcon ALC. Alcon is the largest eye care devices company in the world, with a market cap of more than $28 billion. On April 9, shareholders received 1 ALC share for every 5 NVS shares held as the business split. This move was part of Novartis’ effort to focus on its identity as a pure medicines company. Shares of NVS dove 20.6% in the two weeks after the spin-off.

Unfortunately, Novartis recently had a breakthrough drug fail in phase III. The drug was supposed to prevent or delay symptoms of Alzheimer’s, but some patients experienced a worsening in cognitive function. This drug would have been a huge earner for NVS, and as a result, shares dropped 1.15% the day of the announcement.

Novartis then sold three drugs this past week in a combined deal to Italian drug firm Recordati RCDTF. The deal saw the Italian company take on Signifor, Signifor LAR, and an experimental drug called osilodrostat, which is in late-stage development. Recordati paid Novartis $390 million in cash up front and will receive undisclosed milestone payments from osilodrostat.

Outlook

The near-term financials of NVS do not look good at first glance, with current quarter EPS predicted to be down 4.76% from this time last year and revenue predicted to be down 8.41%, based on our Zacks Consensus Estimates. However, this projected year over year decline is likely due to Novartis’ numerous spinoffs and sales in the past year. With this is mind, analysts predict that the company will come back strongly next year, with a projected EPS growth of 11.69% above our current-year estimate.

Novartis has significantly outperformed its peer group YTD, despite losing a large chunk of value in the Alcon spinoff. It is up 9.2% more than its peer group and up 4.6% more than the broader drugs market.

 

Novartis has a promising drug in its pipeline that was just granted Priority Review by the FDA. It’s called crizanlizumab and is designed as a preventative for pain crises in patients with sickle cell disease. This designation shortens the FDA review period to six months. If approved, this drug will likely be a large revenue generator for NVS. Inventors should note that competitors Global Blood Therapeutics GBT and Vertex Pharmaceuticals VRTX, with its partner CRISPR Therapeutics CRSP, are developing similar competitor drugs.

Bottom Line

Novartis is scheduled to report its quarterly results before the market opens on Thursday, July 18. Investors will be eager to hear how the company has performed since the Alcon spinoff earlier this quarter and how projections have changed.

Novartis is currently a Zacks Rank #2 (Buy) with Style Scores of a “B” for Value and Momentum. If Novartis can continue to focus on being a pure play drug company and report solid earnings, it could be an even more attractive stock for investors.

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