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Novartis Q3 Profit Weak, Lifts FY18 Sales View, To Buy Endocyte; Stock Up

novartis 071817 18oct18 lt

Shares of Novartis AG (NVS) were gaining around 2 percent in the morning trading in Switzerland after the drug major on Thursday lifted its fiscal 2018 net sales guidance, despite weak profit in its third quarter. Core earnings topped analysts' estimates, while net sales missed their view, despite a growth.

Separately, Novartis announced an agreement to buy Endocyte (ECYT), a US-based biopharmaceutical company, for $24 per share. The deal values Endocyte's equity at $2.1 billion, aiming to accelerate radioligand therapy platform.

Endocyte's shares were gaining 49.42 percent in pre-market activity on Nasdaq at $23.25.

Novartis' net income for the third-quarter declined 22% to $1.62 billion from $2.08 billion last year amid weak operating income and the discontinuation of income from the GSK consumer healthcare joint venture. Earnings per share were $0.70, down 21% from $0.89 a year ago.

Operating income declined 13% from last year to $1.94 billion, mainly due to net charges from the voluntary withdrawal of CyPass, higher restructuring and growth investments.

Core net income for the quarter was $3.1 billion, compared to $3.02 billion last year. Core earnings per share were $1.32, compared to $1.29 a year earlier.

On average, six analysts polled by Thomson Reuters expected earnings of $1.31 per share for the quarter. Analysts' estimates typically exclude special items.

Core operating income grew 9% to $3.56 billion, mainly driven by higher sales and improved gross margin, partly offset by growth investments, including AveXis.

Net sales for the third quarter were $12.78 billion, up 3% from last year's $12.41 billion. Analysts were looking for sales of $12.96 billion.

Sales grew 6% constant currencies driven by volume growth of 9 percentage points, mainly from Cosentyx, Entresto, Oncology including AAA, and Alcon.

Strong volume growth was partly offset by the negative impacts of pricing and generic competition.

Looking ahead, the company now expects Group net sales in 2018 to grow mid-single digit at constant currencies. The company said in July that it expected net sales to grow low to mid-single digit at constant currency rates.

The company further confirmed its guidance for Group core operating income in 2018, which it expects to grow mid to high-single digit at constant currencies.

Vas Narasimhan, CEO of Novartis, said, "Our strong operational performance continues as we delivered margin accretive growth, driven by the Innovative Medicines Division, and we are on track to deliver our full year guidance."

Regarding its deal to buy Endocyte, a biopharmaceutical company focused on developing targeted therapeutics for cancer treatment, Novartis said the transaction would be in the form of a merger of Endocyte and a newly formed Novartis subsidiary.

Endocyte uses drug conjugation technology to develop targeted therapies with companion imaging agents, including 177Lu-PSMA-617, a potential first-in-class investigational radioligand therapy for the treatment of metastatic castration-resistant prostate cancer.

In Switzerland, Novartis shares were trading at 85.84 francs, up 1.85 percent.

In pre-market activity on the NYSE, Novartis shares were gaining 1.05 percent to trade at $86.24.

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