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Novartis turns bullish as Gleevec sales exceeds view

NovartisConcerns over the decline in the sales of blood cancer drug Gleevec, which had lost its exclusivity earlier this year, triggered a sell-off in the shares of Europe’s second biggest drug manufacturer Novartis Ag (NYSE: NVS) thereby leading to a decline in the share price to $68.09 as of Tuesday’s close.

The lower than expected third-quarter revenue also aided the decline. Considering the efforts taken by the company to offset the loss of revenue from Gleevec sales, through new drugs and cost cuts, we anticipate the stock to turn bullish in the days ahead.

The Switzerland based Novartis reported fiscal 2016 third-quarter revenue of $12.126 billion, compared to $12.265 billion in the corresponding quarter of 2015. Net income for the Q3 2016 declined 4% to $2.938 billion or $1.23 per share, from $3.061 billion or $1.27 per share in the Q3 2015. The Thomson Reuters survey showed that the analysts, on an average, anticipated Novartis to post earnings of $1.18 per share on revenues of $12.25 billion.


Entresto, the company’s blockbuster drug for heart, reported quarterly sales of $53 million, which corresponds to an increase of $21 million from the second-quarter of 2016. However, it fell short of Jefferies expectations of $58 million in revenue. The company stated that it still expects to meet its full-year revenue guidance of $200 million from the sales of Entresto.

In the Oncology division, the sales of Tafinlar and Mekinist, a combo drug for metastatic melanoma, increased 29% y-o-y to $172 million in the reported quarter. Similarly, the drug Promacta reported 44% growth to $168 million, while the drug Jakavi posted a 47% increase in revenue to $149 million.

Multiple sclerosis drug Gilenya posted a 15% y-o- y increase in revenue to $790 million. Another cancer drug Tasigna posted 8% y-o-y growth to $441 million. The revenue from Psoriasis treatment drug Cosentyx posted revenue of $305 million, but missed the analysts’ estimate of $315 million in sales. The company clarified that the drug is still on track to get a blockbuster status.

Novartis is also working to revive its eye care business Alcon by focusing on surgical and vision care. In this regard, the company has also moved the ophthalmic drugs to pharmaceuticals division. The revenue from Alcon declined 2% to $1.4 billion. Likewise, the sales from Sandoz biotech unit fell 1% to $2.5 billion. However, the quarterly revenue of $834 million from the sales of Gleevec surpassed the analysts’ expectation of $738 million.

The stochastic oscillator, with a reading below 10, indicates an oversold scenario. So, a pullback in the share price is likely to happen soon.

Novartis Stock Price: November 23rd 2016

Novartis Stock Price: November 23rd 2016

Based on this technical and fundamental forecast, we advise the purchase of a one touch call option with a target price of $75 or lower. To allow enough time for the stock to rise and violate the target, the binary trader can opt for an expiry date in the final week of December.

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