Novartis faces drug pipeline test with valuation premium in focus

By Bhanvi Satija

LONDON, July 20 (Reuters) - Novartis investors volition look beyond Tuesday's quarterly results for indications astir 3 large cause proceedings readouts owed successful the 2nd fractional of the twelvemonth seen arsenic captious to justifying the Swiss ‌drugmaker's premium valuation.

Analysts accidental the experimental drugs - pelacarsen for cardiovascular disease, remibrutinib for aggregate sclerosis and familial upset cause ‌del-desiran - could signifier the Basel-headquartered firm's maturation outlook into the adjacent decade, arsenic looming patent expiries enactment drugmakers' pipelines nether expanding scrutiny.

"Markets tin beryllium unforgiving successful ​R&D...with adjacent a tiny shortfall successful objective trials being punished heavily, whilst knockout results are treated with relief," said Ketan Patel, a money manager astatine London-based Novartis capitalist Whitefriars.

Shares successful Britain's AstraZeneca slid earlier this period aft the proceedings nonaccomplishment of a nervus illness cause to dainty bosom conditions.

Novartis Chief Executive Vas Narasimhan, who has led the institution for 8 years, expects the steadfast to turn done what helium ‌has called the largest patent expiry play successful ⁠its history.

"Management's assemblage connection connected those (trial) readouts volition beryllium precise overmuch a focus," said Barclays expert James Gordon.

Analysts estimation the 3 drugs unneurotic correspond much than $10 cardinal successful highest yearly income potential, which would ⁠balance retired expected U.S. and European patent losses for top-sellers Cosentyx, utilized for psoriasis and arthritis, and breast-cancer therapy Kisqali astir the crook of the decade.

Sales of bosom cause Entresto, already facing contention from generics, are expected to driblet by $4 cardinal this year.

TRIAL RESULTS KEY TO VALUATION

Some analysts ​have ​warned that overmuch of the imaginable upside from the proceedings results is ​already reflected successful Novartis' sector-leading valuation of immoderate ‌16 times guardant earnings. Its shares person risen 11% truthful acold this twelvemonth and astir a 4th implicit the past 12 months.

"At 16 times, you bash request those maturation levers to travel through," said Jefferies expert Michael Leuchten.

"It's much astir the momentum successful the 2nd half, and past you mightiness arsenic good tuck successful the somewhat riskier pipeline readouts that are astir the corner."

Goldman Sachs expert James Quigley said Novartis needed astatine slightest 2 of the 3 trials to travel good.

"If 2 of those fail, that 16-times aggregate ‌looks very, precise vulnerable," helium said.

MANAGEMENT CONFIDENCE

Investors volition absorption connected management's confidence, the ​likely timing of readouts and connection astir "clinically meaningful" benefits, a metric that usually ​determines whether a drug's effect is ample capable for ​doctors, patients and payers.