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Factors Setting the Tone for Novartis' (NVS) Q3 Earnings

Zacks Equity Research

Swiss pharma giant Novartis AG NVS is scheduled to report third-quarter 2019 results on Oct 22.

The company has a decent track record, beating earnings expectations thrice in the trailing four quarters by average of 2.84%. In the last reported quarter, the company beat expectations by 10%.

Novartis AG Price and Consensus


Novartis AG Price and Consensus

Novartis AG price-consensus-chart | Novartis AG Quote

Let's see how things are shaping up for this announcement.

Factors Driving Growth

Novartis operates under two segments — Innovative Medicines (Pharmaceuticals and Oncology) and Sandoz (generics).

The company did not provide any quarterly guidance. As in the previous quarters, the Innovative Medicines division might have maintained momentum in the third quarter on the back of strong oncology performance. Promacta/Revolade, Tafinlar + Mekinist, Jakavi, and recent launches like Luthathera are likely to have fueled the top line in the third quarter.  Investors will also be keen on the initial uptake of Piqray (alpelisib, formerly BYL719) in breast cancer and Zolgensma, the first and only gene therapy for pediatric patients with spinal muscular atrophy.

Sales in the Pharmaceuticals franchise grew year over year in the second quarter, a trend that most likely continued in the third quarter driven by strong performance of psoriasis drug Cosentyx and Entresto. Cosentyx continues to gain traction on the back of strong growth in three approved indications, while Entresto’s sales might have benefited from continued access improvements and expansion of sales force in the United States. The growth from these drugs is likely to have countered generic pressure for key drugs — Diovan, Gleevec and Exforge.

Price erosion in the United States might reflect on Sandoz’s sales in the third quarter. Nevertheless, the launches of Rixathon, the biosimilar version of Rituxan (rituximab); Erelzi, the biosimilar of Enbrel in the EU; and Hyrimoz (filgrastim) in Europe might have partially offset the decline in the United States.

Apart from the top and bottom-line numbers, we expect investors to focus on the company’s pipeline updates. The FDA had earlier approved Novartis’ ophthalmology drug Beovu (brolucizumab) injection for the treatment of wet age-related macular degeneration.

Share Price Performance

The stock has inched up 1.7% in the year so far compared with the industry's growth of 0.8%.

Earnings Whisper

Our proven model does not conclusively predict an earnings beat for Novartis this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. Unfortunately, that is not the case here, as you will see below. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP for Novartis is -4.73% as the Zacks Consensus Estimate of $1.38 is higher than the Most Accurate Estimate of $1.31.

Zacks Rank: Novartis currently carries a Zacks Rank #3.

Stock to Consider

Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

Merck & Co., Inc. MRK has an Earnings ESP of +0.16% and a Zacks Rank #3. The company is scheduled to release results on Oct 29. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pfizer, Inc. PFE has an Earnings ESP of +0.26% and a Zacks Rank #3. The company is scheduled to release results on Oct 29.

Gilead Sciences, Inc. GILD has an Earnings ESP of +0.91% and a Zacks Rank #3. The company is scheduled to release results on Oct 24.

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