The Swiss drugmaker, Novartis AG (NYSE: NVS), issued an upward revision of its full-year revenue outlook, citing growing sales of its arthritis and Cosentyx psoriasis drug, besides the impressive performance of heart failure medicine Entresto, whose 3Q18 sales more than doubled. Furthermore, Novartis also announced the acquisition of US radiopharmaceuticals company Endocyte in an all-cash deal.
Optimistic FY18 outlook & valuable acquisition
Novartis raised its projection for the rest of the year, saying it anticipates a net sales growth in the mid-single-digit percentage at constant currencies. The company previously anticipated group net sales to rise at low to mid-single-digit rates.
During the third quarter, the Swiss pharmaceuticals company recorded revenue of $12.78 billion, an increase from $12.41 billion in the year-ago period. Analysts had anticipated sales of $12.78 billion for the quarter. Sales in the innovative medicines division increased 9% on a y-o-y basis. During the third-quarter core net income increased 2% y-o-y to $3.1 billion, versus analyst forecast of $3 billion.
Novartis also expects operating profit to rise in the mid-to-high-single-digit percentages.
While issuing the revised forecast, Novartis said it expects Sandoz generics business to decrease at a low-single-digit rate, and its Alcon eye care business to increase at a mid-single-digit pace.
Novartis also announced that it had acquired US radiopharmaceuticals company Endocyte for $2.1 billion. The acquisition is expected to give it an advantage in the prostate cancer field. For the acquisition, the company is paying $24 per share. The amount represents a 54% premium to Endocyte’s closing price of $15.56 on Thursday.
The transaction is expected to complete in the first half of 2019, subject to approval by Endocyte stockholders, regulatory, antitrust approvals, and other requisite closing terms. Until then, Endocyte will operate as a standalone entity. Yesterday, following the news of the acquisition, the stock rose 50.71% to close at $23.46. Furthermore, the board of directors of Endocyte has unanimously approved the transaction.
The acquisition is the latest effort by Novartis to transform into a focused-medicines company. Completion of the transaction is expected in the first half of 2019, subject to approval by Endocyte stockholders, antitrust and regulatory approvals, and other customary closing conditions. Until that time, Endocyte will continue to operate as a separate and independent company.
Under CEO Vasant Narasimhan, who took over the reins earlier this year, Novartis has been uncompromisingly following a tactic to turn into a focused-medicines company. This includes plans to divest the Alcon eye-care unit, selling portions of its generics business, and announcing layoffs. Novartis also anticipates radiopharmaceuticals to be a key growth driver for its business.
Commenting on the buyout deal, Mike Sherman, president and CEO of Endocyte, said: “Since acquiring exclusive worldwide rights to develop and commercialize PSMA-617 agents in 2017, the entire Endocyte team, along with our partners, have worked tirelessly to build a leading radioligand (RLT) portfolio and create value for patients and shareholders alike. We are thrilled that Novartis recognizes the potential for 177Lu-PSMA-617 to change the treatment landscape for men with metastatic castration-resistant prostate cancer (mCRPC), as well as the broader role that RLTs may potentially play in the treatment of cancer. The global reach and expertise of Novartis in developing and commercializing RLT therapies will be critical in efforts for patients to benefit from these therapies as quickly as possible.”
The upwardly revised full-year revenue outlook and acquisition of Endocyte are expected to keep the stock bullish in the short-term.
Technically, the stock is trading above its 50-day moving average with the Chaikin money flow indicator in the positive region. As a result, the stock can be expected to remain bullish in the days to come.
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