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Why Novartis Missed Wall Street Q1 Estimates

By Keith Speights - Apr 27, 2021 at 11:53AM

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It was partially because of COVID-19.

Novartis (NVS -0.65%) hasn't given investors much to cheer about over the last year. Its shares have gone in the wrong direction over the last 12 months and so far in 2021.

The big drugmaker announced its first-quarter results before the market opened on Tuesday. And there still wasn't much to cheer about, with the pharma stock slipping more than 1% in early trading. Here are the highlights from Novartis' Q1 update.

Scientist in lab filling test tubes.

Image source: Getty Images.

By the numbers

Novartis reported revenue in the first quarter of $12.4 billion, up 1% year over year on a reported basis but down 2% on a constant-currency basis. This result fell short of the average analyst estimate of $12.5 billion.

The company announced net income in the first quarter of $2.06 billion, or $0.91 per share, based on generally accepted accounting principles (GAAP). In the prior-year period, Novartis generated GAAP earnings of $2.17 billion, or $0.96 per share.

Novartis recorded core net income in the first quarter of $1.52 per share, down from $1.56 per share in the prior-year period. It also missed the Wall Street consensus estimate of $1.59 per share.

Behind the numbers

COVID-19 hurt Novartis in two key ways in the first quarter. Year-over-year comparisons were challenging because of forward purchasing of products in the prior-year period. Efforts to curb the spread of COVID-19 also were a factor in this year's cough, cold, and flu season being historically weak, which negatively impacted sales of some of Sandoz's products.

Novartis' Sandoz business was the main problem spot for the company in Q1. Net sales for the unit fell 13% year over year on a constant-currency basis to $2.3 billion. This decline was partially due to the effects of COVID-19, but Sandoz also faced increased competition.

The company's "innovative medicines" segment didn't fare so badly. Net sales increased by 4% on a reported basis to $10.1 billion but were flat year over year on a constant-currency basis. 

Any concerns about the ultra-high price tag for Zolgensma seemed to be overblown. Sales for the spinal muscular atrophy drug skyrocketed 81% to $319 million. Heart failure drug Entresto also delivered strong growth with sales soaring 34% to $789 million. Sales for autoimmune disease drug Cosentyx jumped 11% to $1.1 billion. Leukemia drug Kymriah picked up momentum, with sales vaulting 55% higher to $151 million.

Looking ahead

Novartis CEO Vas Narasimhan said that the company "expect[s] Sandoz performance to stabilize, in the near-term, after a challenging quarter." This stabilization is a must-have for the company to return to solid growth.

For full-year 2021, though, Novartis anticipates that Sandoz sales will continue to decline by low- to mid-single digits. However, the company looks for its "innovative medicines" segment sales to increase by mid-single digits. Overall, Novartis expects to grow net sales by low- to mid-single digits this year with core operating income increased by mid-single digits. 

This guidance includes a key assumption, though, that business returns to normal by the middle of this year with no worsening of the COVID-19 pandemic. Novartis also is assuming that generic rivals for multiple sclerosis drug Gilenya or diabetes drug Sandostatin LAR enter the U.S. market in 2021.

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