Novartis Reports Disappointing Q4 Earnings Amid Pandemic Challenges and Regulatory Setbacks

Compiled by Keke

On January 26, according to foreign media reports, Novartis’ stock price fell 4.4% after the market opened, following the announcement in its Q4 2020 earnings conference call that net profit amounted to $2.1 billion, with earnings per share (EPS) of $0.92, both figures falling short of most investors’ expectations. The pharmaceutical giant reported net sales of $12.8 billion for the fourth quarter of last year, primarily driven by a 6% increase in sales volume, particularly a 2% growth in its Pharmaceuticals division.

According to public statements by Novartis, lockdowns and restrictions resulting from the COVID-19 pandemic impacted sales of prescription drugs, particularly in the ophthalmology, dermatology, and Sandoz generics divisions. Low patient volumes in physician offices and hospitals limited patients’ initiation of or switching to new medications. Novartis expects that pandemic-related impacts will persist through the first half of 2021, while their effect on regulatory submissions for most new drugs will be minimized by 2025.

Novartis Faced Significant Regulatory Challenges in 2020. The small interfering RNA therapy Leqvio was approved by the European Commission in December 2020 for lowering low-density lipoprotein cholesterol (LDL-C) levels in patients with hyperlipidemia and cardiovascular disease. However, last month, the U.S. Food and Drug Administration (FDA) issued a Complete Response Letter (CRL) to Novartis regarding the drug’s application, citing issues at the facility of the company’s third-party manufacturer, thereby preventing the approval of Leqvio for marketing in the United States.

In its latest financial report, Novartis stated that it expects to respond to the U.S. FDA’s Complete Response Letter (CRL) in the third quarter of 2021, with specific arrangements depending on third-party manufacturers. The company also noted that the U.S. FDA did not raise any concerns regarding the safety or efficacy of Leqvio. Meanwhile, Novartis announced that it is proceeding to add an internal production facility for Leqvio.

Novartis President Marie-France Tschudin anticipates that sales of Leqvio will “start slowly and steadily” as the drug gains insurance coverage and reimbursement in various countries. Moreover, the delay in regulatory approval in the United States may prove to be a potential positive factor, sparing Novartis from launching during the COVID-19 pandemic. During this period, the company was able to strengthen its launch preparedness and devote more time to collaborating with healthcare systems on reimbursement matters.

Novartis has also been grappling with another regulatory setback. Although the company highlighted in its financial report that Zolgensma generated $920 million in sales in the United States, the gene therapy has been under a partial clinical hold in the U.S. since 2019, pending completion of additional preclinical and clinical studies to confirm its efficacy and safety in older patients with type 2 spinal muscular atrophy (SMA). Novartis CEO Vas Narasimhan stated that animal data are expected to be released later this year, with further global approvals anticipated in the first half of 2021.

Narasimhan pointed out in a statement: "Operationally, we have increased sales of innovative drugs and continue to improve core operating margins. ... Novartis launched Kesimpta, a B-cell therapy for the treatment of relapsing multiple sclerosis, in the United States, as well as Leqvio and Zolgensma in the European Union. These launches are among the 26 approvals the company received last year. Looking ahead, we believe that our progress in strategic focus areas will result in growth at both ends of the spectrum by 2025."

“Novartis will spare no effort in addressing the issues concerning Leqvio and Kesimpta,” Qiu Ding told reporters during a conference call on Tuesday. As a CD20-targeted therapy, Kesimpta received U.S. FDA approval last August, becoming a direct competitor to Roche’s rapidly growing Ocrevus.

Qiu Ding told investors, “To date, our marketing team has achieved all internal targets. This includes reaching all potential prescribers targeted by Novartis. In addition, among individuals in the United States with commercial insurance, approximately 73% now have unrestricted drug coverage or are required to try one other therapy before using Kesimpta.” According to Novartis, around 1,000 patients were treated with the drug during its first four months on the market. However, it must be acknowledged that the COVID-19 pandemic caused some setbacks; in the fourth quarter, the drug generated only $14 million in revenue.

Nevertheless, this will not alter the outlook for Kesimpta. In fact, Qiu Ding expects that this B-cell therapy could capture 40% of the multiple sclerosis market. She added, “Once we emerge from the current epidemic, we can focus Novartis’s full commercial power on Kesimpta, and that is when we will truly see the product’s potential.” Sales of Kesimpta are projected to rise primarily in the second half of 2021, as the pandemic-related economic slowdown eases.

The growth driver for the fourth quarter of 2020 was the Novartis Pharmaceuticals division, with sales growth attributed to Zolgensma, Entresto, and Cosentyx. Entresto was approved in 2019 for the treatment of pediatric heart failure, and last month, the U.S. FDA held a positive advisory committee meeting, which could lead to additional approval for the drug in treating patients with heart failure with preserved ejection fraction (HFpEF). Cosentyx received U.S. FDA approval in 2020 for the indication of non-radiographic axial spondyloarthritis (nr-axSpA).

Entresto and Cosentyx will continue to serve as Novartis’s primary growth engines for the foreseeable future. In 2020, the combined revenue from these two blockbuster drugs reached $6.49 billion, accounting for approximately 13.3% of Novartis’s total revenue. Both medications also maintained double-digit sales growth. In the fourth quarter of last year, Entresto’s sales rose by 35% year-over-year on a constant-currency basis, reaching $716 million, which was 4% higher than industry analysts’ expectations. Cosentyx generated $1.11 billion in sales, representing a 13% year-over-year increase on a constant-currency basis. Cosentyx is currently awaiting Phase III study results for hidradenitis suppurativa, an inflammatory skin condition, to timely support its regulatory approval application next year. The drug recently gained national medical insurance reimbursement coverage in China for the indications of plaque psoriasis and ankylosing spondylitis, outpacing its biologic competitors.

Overall, Novartis reported full-year 2020 sales of $48.7 billion, a 3% year-on-year increase, in line with analysts’ expectations. Entering 2021, the company projects sales growth in the low-to-mid single digits, contingent on a mitigation of the influenza epidemic in the second half of the year.

References:

1.Novartis Shares Down Following Disappointing 4Q Report

2.Novartis 'not leaving any stone unturned' for Kesimpta, Leqvio as Entresto, Cosentyx drive growth