The Food and Drug Administration approved five new Novartis (NVS 2.27%) drugs last year, the most of any big pharma in 2019. Moreover, those compounds address five different disease areas, offering the company opportunities to tackle a variety of markets.
Given its a history of positive earnings surprises, its reasonable valuation, and Wall Street's strong buy rating on its stock, the potential revenue from those new drugs is just one more reason to be optimistic about Novartis shares this year.
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Even without the new drug approvals, the Swiss pharmaceutical giant was in a solid position when it reported third-quarter earnings in October.
Fifteen of its top 20 drugs saw year-over-year sales growth, contributing to revenue of more than $7 billion. On top of that list was Cosentyx, a treatment for psoriasis and psoriatic arthritis. And this drug's ascension illustrates the importance of constant innovation. Cosentyx posted a 25% increase in sales to $937 million, outpacing Novartis's former bestseller, Gilenya, a multiple sclerosis treatment, for the third consecutive quarter. Further down the list is Gleevec, a once-blockbuster cancer drug that has seen sales decline as generic competition entered the market.
Gleevec and Gilenya lose traction
Novartis' flow of newly approved drugs should help it compensate for lost sales as older ones such as Gleevec and Gilenya decline. Last year, Piqray became the first FDA-approved treatment for people with a PIK3CA gene mutation in HR+/HER2- advanced breast cancer. The drug acts by blocking the effects of the gene mutation that lead to tumor growth. In HR+ cancer, the disease is fueled by estrogen or progesterone. In HER2- cancer patients, the HER2 protein doesn't play a role in disease development. The percentage of patients with a PIK3CA mutation as well as the market size make Piqray a valuable asset for Novartis. Piqray generated $43 million in its first full quarter on the market. According to a study in The New England Journal of Medicine, about 40% of patients with these cancer types have a PIK3CA mutation. A DelveInsight report shows the market size for HR+/HER2- breast cancer in the seven major global markets was $5.2 billion in 2017 and will grow at a 0.8% compound annual growth rate through 2028.
Other approvals last year included Mayzent, a drug for multiple sclerosis; Adakveo for painful complications in sickle cell disease; Beovu, a treatment for wet age-related macular degeneration; and Egaten, a drug to treat fascioliasis, an infectious disease caused by parasitic flatworms.
A market to capture
Though Mayzent got off to a slow start in the third quarter, with $4 million in sales, Refinitiv cited data predicting revenue of $800 million for it by 2022, while the company predicted it would reach the blockbuster level of $1 billion in annual sales. The multiple sclerosis market is projected to reach $39 billion by 2026, according to Fortune Business Insights, but it is also crowded with players as well as generic competition.
What is significant for Mayzent is that it's the only drug to be approved for patients with active secondary progressive multiple sclerosis in more than 15 years. It may take Novartis time to win over doctors since it isn't always clear when a patient's disease has evolved to that stage, but Novartis has the potential to capture this market.
Not included in the novel drug count was gene therapy Zolgensma, which was approvedfor spinal muscular atrophy in babies and toddlers. That treatment brought the company $160 million in the third quarter after launching in the prior one.
Room for upside
As for earnings, Novartis has reported positive surprises over the past three quarters, and last quarter raised its guidance for full-year sales and profit. So investors have reason to be optimistic ahead of the fourth-quarter and annual reports at the end of this month. Though the price-to-earnings ratio has been climbing from a low point of about 16.75 in October, its current level of a little higher than 18 is reasonable, particularly considering the new products launched last year.
Its current share price leaves room for upside of 7.8% before the stock reaches analysts' average price target of $101. The stock is off to a sluggish start this year, down 1.1%, offering investors an entry point for a pharmaceutical company with a healthy portfolio of products.
