Pharmaceutical company Novartis AG (NYSE: NVS) easily surpassed earnings and revenue expectations when it reported fiscal 2018 second-quarter results yesterday. Cosentyx and Entresto drugs were revealed as the main driver of growth in the second quarter. The company also reiterated its fiscal 2018 outlook. Based on the details provided below, we are expecting the stock of Novartis, which closed Wednesday’s trading session at $80.96, to stay bullish in the short term.
The Swiss drugmaker reported 2Q18 net sales of $13.16 billion, up 7% from $12.24 billion last year. On a constant currency basis, net sales increased 5% from the prior-year period. Net income skyrocketed to $7.77 billion, or $3.34 per share, in the recent quarter, from $1.98 billion, or $0.84 per share, in the year-ago period. Core net income was $3.01 billion or $1.29 a share in the second quarter of 2018, compared with $2.87 billion or $1.22 a share in the corresponding quarter of 2017. On average, the Wall Street analysts expected Novartis to post earnings of $1.27 a share on revenues of $12.94 billion.
During the quarter, the company recorded a huge gain from the sale of its stake in the GSK consumer healthcare joint venture. This was one of the main reasons for the surge in 2Q18 earnings. Of the $13 billion revenue in Q2 2018, $5.70 billion was contributed by the stake sale.
Alcon, the ophthalmology unit of Novartis performed well. During the quarter ended June 2018, Alcon revenues were $1.82 billion, up 5% y-o-y on a constant currency basis. Notably, Novartis is currently working to spin off the eye devices business.
Sales of innovative medicines increased 8% to $8.88 billion. However, Sandoz’s net sales declined 2% y-o-y to $2.50 billion in Q2 2018. In the US, the drug price fell by 9%. However, it was offset by a 7% increase in volumes. Excluding the US, net sales grew 5%.
The company’s growth during the quarter was driven by Cosentyx, Tafinlar + Mekinist, Entresto, Promacta/Revolade, Kisqali, Lutathera, Jakavi and Kymriah as well as Biopharmaceuticals and Emerging Growth Markets.
The performance of these drugs is as follows:
- Cosentyx – $701 million, up 40% on y-o-y basis
- Entresto – $239 million, a gain of 113% from last year
- Promacta/Revolade – $292 million, an increase of 38% on a y-o-y basis
- Tafinlar + Mekinist – $284 million, grew 28% from the previous year
- Kisqali – $59 million in 2Q18. Sales continue to improve in the US. The drug was also launched in some of the EU countries. This is expected to propel growth further
- Jakavi – $239 million, an increase of 24% from last year
- Lutathera – $ 24 million. The drug, recently launched in the US, is showing signs of further progress.
- Kymriah – $16 million. The drug has received FDA approval in May 2018 for the treatment of relapsed adult DLBCL patients.
- Biopharmaceuticals – $363 million, representing a growth of 34% on a y-o-y basis. The growth was mainly driven by Rixathon (rituximab) and Erelzi (etanercept) in Europe and Zarxio in the US.
Looking forward, the company continues to expect a low to mid-single-digit sales growth in FY18. Core operating income is expected to grow mid to high-single-digit. The reaffirmation is significant in the sense that the company has halted its plans to hike drug prices as US President Trump is working out the new healthcare blueprint. Novartis also revised its sales outlook for Alcon upwards to mid-single-digit growth. Therefore, strong quarterly results, the impressive performance of Cosentyx and Entresto, and the reaffirmation of the FY18 sales growth outlook are expected to keep the stock bullish in the days ahead.
The historical price chart indicates that the stock has broken the resistance at 80. This level is expected to act as support from here on. Furthermore, the stock is also trading above its 50-day moving average. Both MACD and Chaikin money flow indicator is in the positive region and rising. Therefore, we are expecting the stock to move up in the short term.
To benefit from the uptrend, we are planning to invest in a call option, which is valid for a period of one week. We may use our surplus funds to purchase the contract only if the stock is trading near $80.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
