Breakthroughs at Novartis?

11/23/2016 7:00 am EST


John Eade

Chairman and CEO, Argus Research Group

Our latest featured stock is a pharmaceutical company based in Switzerland; its key products include Diovan for high blood pressure, Gleevec for leukemia, Cosentyx for psoriasis, and Gilenya for multiple sclerosis, notes John Eade, analyst with Argus Research.

Novartis AG (NVS) recently completed a three-part deal in which it sold its vaccine business to Glaxo Smithkline (GSK), bought the Glaxo oncology business, and combined its consumer healthcare business in a joint venture with the Glaxo’s consumer healthcare business.

The transaction is helping Novartis to focus on its strengths — eye care, autoimmune disorders, oncology and generics, including biosimilars — while exiting noncore businesses.

Over the next several years, we expect the company to launch several new drugs in such critical areas as coronary disease and oncology.

Many of the drugs under development are considered breakthrough treatments and should benefit from strong pricing power.

Novartis reported successful trial results for CDK4/6 inhibitor LEE011 plus letrozole for advanced breast cancer; the drug was granted breakthrough therapy status by the FDA.

The company’s generics subsidiary, Sandoz, continued to strengthen its biosimilars portfolio and pipeline. The FDA approved biosimilar etanercept (Enbrel) in the third quarter.

Biosimilar rituximab has been submitted for EU approval. Sandoz is also working with the FDA on approval for pegfilgrastim, a biosimilar for Neulasta.

The company’s “growth products” include new products launched in key markets, such as Gilenya for multiple sclerosis, Tasigna for leukemia, Jakava for myelofibrosis, Cosentyx for psoriasis and other conditions, and Entresto for chronic heart failure.

NVS shares appear attractively valued at current levels near $74. Its balance sheet is clean and the current dividend yield is a hefty 3.8%. Our target price of $85 assumes improving multiples along with improving earnings.

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By John Eade, Analyst with Argus Research

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