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Novartis AG Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- NBRx share in the B-cell segment is in the high 20s, and outside of the United States, the company had 67% constant currency growth.
- Kisqali grew 49% in the full year, reaching $3 billion in sales.
- Pluvicto delivered full-year sales of $1.4 billion, 42% in constant currencies in the post-taxane setting.
- The company is getting positive feedback from physicians and seeing solid uptake in node-negative and node one patients without risk factors, as well as the overlapping node one and node two plus patient population.
- The company has the replacement power to consistently grow through the end of the decade.
- The company expects a modest headwind from the Part D reforms.
- The company expects sales to grow low double-digit in half one, while it expects a softer half two due to the impact of the three potential generic entries, with low to mid-single digit sales growth.
- The company expects a headwind from the Part D reforms, and has factored that into its guidance.
- Half one core opinc is expected to grow in the high teens versus low to mid-single digit growth in half two.
- The company expects continued, if not slightly increased, volume growth due to launches and continued very good execution from a volume standpoint.
- The company expects to grow mid to high single-digit.
- The company expects SG&A to grow below sales growth.
- The company expects to achieve its midterm margin guidance of 40% plus by 2027.
Q&A Highlights from Novartis AG Earnings Call Q4 2024
- Analyst asked about the guidance and how the company will offset the impact of generic competition on the P&L and top line.
- Vasant Narasimhan explained that the company is confident in its mid to high single-digit sales growth, which will be supported by ongoing resource allocation and productivity programs. The company expects a moderate margin increase and is confident in its ability to maintain sales growth with assumptions of underlying volume growth and neutral pricing. Additionally, the company is working on productivity programs, such as SG&A, to grow below sales growth.
- Vasant Narasimhan explained that the company is confident in its mid to high single-digit sales growth, which will be supported by ongoing resource allocation and productivity programs. The company expects a moderate margin increase and is confident in its ability to maintain sales growth with assumptions of underlying volume growth and neutral pricing. Additionally, the company is working on productivity programs, such as SG&A, to grow below sales growth.
- Analyst asked about the PIVOT-HD trial and how it will derisk the probability of success, given the slowly progressing nature of the disease and the relatively short study duration.
- Vasant Narasimhan stated that the goal of the trial is to reduce mutant huntingtin protein by 30% to 50%, while also seeing clinical signs of improvement. The company is hopeful that the Phase IIb study will read out positively, leading to a filing for approval. If not, a full pivotal study will be needed to answer the question of whether reducing mutant huntingtin at that level leads to clinical benefits. The company is hopeful that the trial will be successful and that it can bring an important first disease-modifying therapy to patients who desperately need it.
- Vasant Narasimhan stated that the goal of the trial is to reduce mutant huntingtin protein by 30% to 50%, while also seeing clinical signs of improvement. The company is hopeful that the Phase IIb study will read out positively, leading to a filing for approval. If not, a full pivotal study will be needed to answer the question of whether reducing mutant huntingtin at that level leads to clinical benefits. The company is hopeful that the trial will be successful and that it can bring an important first disease-modifying therapy to patients who desperately need it.
- Analyst asked about the drivers behind the sequential decline in Pluvicto sales in the US and whether any DTC or promotional efforts would impact sales ahead of the PSMAfore approval.
- Vasant Narasimhan explained that the guidance does not expect significant sales growth until the additional indication of PSMAfore is added, and that the sequential decline in US sales was due to true-ups of gross to net for prior quarters of 2024, resulting in an underlying growth of 12%. The company does not assume a risky assumption on gross to net, and has computed the impact of the 2024 sales level into their 2025 gross to net calculation.
- Vasant Narasimhan explained that the guidance does not expect significant sales growth until the additional indication of PSMAfore is added, and that the sequential decline in US sales was due to true-ups of gross to net for prior quarters of 2024, resulting in an underlying growth of 12%. The company does not assume a risky assumption on gross to net, and has computed the impact of the 2024 sales level into their 2025 gross to net calculation.
- Analyst asked about the impact of Medicare Part D reform on the company's growth, specifically around its large oral oncology portfolio.
- Vasant Narasimhan explained that the company expects a modest headwind from the Part D reforms, and that they have factored that into their guidance. They see the biggest impact on Cosentyx and Kisqali, but have modeled the expected headwinds and potential volume uplift. They see a modest headwind, which they believe they can manage, and that is incorporated into their guidance. They also expect a positive impact on patient compliance and ultimately on sales in the coming years, but believe it's hard to put much credence on that in the first year.
- Vasant Narasimhan explained that the company expects a modest headwind from the Part D reforms, and that they have factored that into their guidance. They see the biggest impact on Cosentyx and Kisqali, but have modeled the expected headwinds and potential volume uplift. They see a modest headwind, which they believe they can manage, and that is incorporated into their guidance. They also expect a positive impact on patient compliance and ultimately on sales in the coming years, but believe it's hard to put much credence on that in the first year.
- Analyst asked about the impact of the halo effect from the adjuvant on Kisqali's ability to gain more accounts and displace Ibrance.
- Vasant Narasimhan, CEO of Novartis, explained that Kisqali's share has increased significantly since the early breast cancer readout, which led to more confidence in the brand and the NCCN Guidelines supporting its use. He mentioned that they are hopeful to drive the NBRx share higher than 52% and that they have a cap of around 75%-80% due to payer dynamics and contraindications. However, their goal is to get as high as possible, with a focus on maximizing the opportunity in node zero and node one patients without risk factors where Kisqali is uniquely labeled.
- Vasant Narasimhan, CEO of Novartis, explained that Kisqali's share has increased significantly since the early breast cancer readout, which led to more confidence in the brand and the NCCN Guidelines supporting its use. He mentioned that they are hopeful to drive the NBRx share higher than 52% and that they have a cap of around 75%-80% due to payer dynamics and contraindications. However, their goal is to get as high as possible, with a focus on maximizing the opportunity in node zero and node one patients without risk factors where Kisqali is uniquely labeled.
- Analyst asked about sales progression worldwide and in the US, and the potential benefit from the donut hole discount removal in the US.
- Harry Kirsch, Chief Financial Officer of Novartis, explained that they expect continued good growth of Entresto until the forecast assumption, and that there is some favorability from the Medicare Part D redesign on Entresto. He also mentioned that Entresto is under-forecasted versus their model due to its large tail end product in emerging markets. Vasant Narasimhan, CEO of Novartis, added that they are pursuing all options in Europe and Japan to ensure they maximize the exclusivity for Entresto in those geographies. They also believe that the spirit of the law very much is that they did their pediatric exclusivity studies and those pediatric - that pediatric six-month extension on the combination patent should be respected.
- Harry Kirsch, Chief Financial Officer of Novartis, explained that they expect continued good growth of Entresto until the forecast assumption, and that there is some favorability from the Medicare Part D redesign on Entresto. He also mentioned that Entresto is under-forecasted versus their model due to its large tail end product in emerging markets. Vasant Narasimhan, CEO of Novartis, added that they are pursuing all options in Europe and Japan to ensure they maximize the exclusivity for Entresto in those geographies. They also believe that the spirit of the law very much is that they did their pediatric exclusivity studies and those pediatric - that pediatric six-month extension on the combination patent should be respected.
- Analyst asked about the impact of generics on Novartis' revenue in the second half of 2024 and whether a low to mid-single-digit exit rate is a reasonable expectation.
- Vasant Narasimhan, CEO of Novartis, explained that the company expects continued volume growth due to launches and execution, but pricing may be pressured by 1% to 2% points negative. He also mentioned that the company has modeled the impact of generic drugs on its revenue and that the second half of 2024 is expected to look similar to the first half if the forecast assumptions are not met.
- Vasant Narasimhan, CEO of Novartis, explained that the company expects continued volume growth due to launches and execution, but pricing may be pressured by 1% to 2% points negative. He also mentioned that the company has modeled the impact of generic drugs on its revenue and that the second half of 2024 is expected to look similar to the first half if the forecast assumptions are not met.
- Analyst asked about the bolus opportunity and the speed of ramp-up for OAV101, a new gene therapy for spinal muscular atrophy.
- Vasant Narasimhan, CEO of Novartis, explained that the company expects a similar ramp-up to what they saw with Zolgensma, their previous gene therapy for spinal muscular atrophy. He also mentioned that the dynamic is different for OAV101, as many patients will need to be switched from their current treatment, but that the company is confident in the competitive advantage of their medicine over the current standard of care. He also mentioned that the company is hopeful that the medicine will surprise people and become a $3 billion-plus medicine over time.
- Vasant Narasimhan, CEO of Novartis, explained that the company expects a similar ramp-up to what they saw with Zolgensma, their previous gene therapy for spinal muscular atrophy. He also mentioned that the dynamic is different for OAV101, as many patients will need to be switched from their current treatment, but that the company is confident in the competitive advantage of their medicine over the current standard of care. He also mentioned that the company is hopeful that the medicine will surprise people and become a $3 billion-plus medicine over time.
- Analyst asked about the company's policy of under-promising and over-delivering.
- Vasant Narasimhan, CEO of Novartis, clarified that the company's policy is not a global policy, but rather a way of giving investors the midpoint estimate of where they think things will go. He also mentioned that the company's performance over the last two years has been outstanding and that they have consistently beaten expectations, leading to raises. He stated that the company does not plan to change its midterm guidance, but if they consistently perform at a higher level than the 5% midterm guidance, they may have to reconsider it.
- Vasant Narasimhan, CEO of Novartis, clarified that the company's policy is not a global policy, but rather a way of giving investors the midpoint estimate of where they think things will go. He also mentioned that the company's performance over the last two years has been outstanding and that they have consistently beaten expectations, leading to raises. He stated that the company does not plan to change its midterm guidance, but if they consistently perform at a higher level than the 5% midterm guidance, they may have to reconsider it.
- Analyst asked about the most meaningful products that will read out this year, notably the Phase III readouts.
- Vasant Narasimhan, CEO of Novartis, highlighted that ianalumab is a key readout, both for Sjögren's and second-line ITP, and that the readout of Pluvicto in hormone-sensitive prostate cancer will create a patient population as large as the PSMAfore population. He also mentioned the remibrutinib food allergy Phase IIb readout, which will enable the company to move rapidly for the next third indication, and the remibrutinib filing, which they intend to use a priority review voucher. He also noted a long list of other things on slide 33 that will move the needle for this year.
- Vasant Narasimhan, CEO of Novartis, highlighted that ianalumab is a key readout, both for Sjögren's and second-line ITP, and that the readout of Pluvicto in hormone-sensitive prostate cancer will create a patient population as large as the PSMAfore population. He also mentioned the remibrutinib food allergy Phase IIb readout, which will enable the company to move rapidly for the next third indication, and the remibrutinib filing, which they intend to use a priority review voucher. He also noted a long list of other things on slide 33 that will move the needle for this year.
