Novartis (NVS) is a Swiss-based pharmaceutical company formed by the merger of Basel-based Sandoz and Ciba-Geigy. It is one of the ten largest drug companies in the world, explains Gavin Graham, contributing editor to Internet Wealth Builder.
Novartis has major strengths in oncology, eye disease through its Alcon subsidiary, multiple sclerosis, asthma, and diabetes.
The stock is off slightly, after having reached $94 in January as the potential became apparent for Kimryiah, its ground-breaking genetic treatment for Acute Lymphoblastic Leukemia (ALL), the most common form of childhood cancer.
Recent developments: The new CEO, Harvard-educated Dr. Vas Narasimhan, who took over early this year, has carried out several major strategic moves. The first one was the sale in March of the company's 36.5% stake in the consumer products joint venture it formed with GlaxoSmithKline (GSK) when they swapped their oncology and vaccine businesses in 2015. This raised $13 billion.
Novartis used that money to purchase two leading edge gene therapy companies in the second quarter: Advanced Accelerator Applications (AAA) for $3.5 billion and AveXis for $8.3 billion. The latter has a breakthrough treatment for spinal muscular atrophy.
Despite this outlay, Novartis generated free cash flow of $5.5 billion in the first half (to June 30). That allowed it to fund its annual dividend payment and not increase its debt, which is at $19.2 billion.
In July, Dr. Narasimhan announced the spin-off of 100% of the Alcon eye care division to shareholders, with closing expected to take place by the first half of 2019. Alcon's ophthalmic pharmaceuticals division was moved into Novartis in 2016, and produced sales of $4.6 billion in 2017.
Alcon itself is now focused on surgical and vison care and is the world leader in eye care devices, such as contact lenses. The stock will be dual listed in Switzerland and New York and the spin-off is intended to be tax neutral.
Novartis also announced a $5 billion share buyback program to be completed by the end of 2019. Second quarter sales were up 5% in constant currency to $132 billion. Core operating income was up 7% to $3.5 billion.
Excluding the $5.7 billion gain on the sale of the consumer product joint venture to GSK, net income was up 4% to $2 billion ($1.29 per share). Innovative Medicines (new pharmaceutical treatments) saw sales grow 8% and core operating income by 12%.
Generic division Sandoz saw sales down 2% and core operating income decline 5%, while Alcon saw sales up by 5% and core operating income by 14%. Novartis forecast low to mid-single digit growth in sales and mid to high single digit growth in core operating income for 2018 as a whole.
The stock pays an annual dividend. Investors received $2.94 per share in March. That works out to a yield of 3.6% at the current price. With its strategic direction much clearer, new breakthrough drugs in the pipeline either through internal discoveries or acquisitions, and the Alcon situation resolved, Novartis remains a Buy.
