Novartis Earnings Call: Record Margins Amid Generic Wave

Novartis AG ((NVS)) has held its Q4 earnings call. Read on for the main highlights of the call.

Novartis Earnings Call Highlights: Strong Core Momentum Amid Looming Patent Cliff

The latest Novartis AG earnings call painted a broadly upbeat picture of a company hitting record profitability and cash generation while riding strong multi-product growth, yet bracing for substantial patent-expiry and generic headwinds from mid‑2025 into 2026. Management balanced confidence in blockbuster brands, a deep late-stage pipeline, and disciplined capital allocation with a candid acknowledgment of near-term noise in quarterly results, looming loss-of-exclusivity (LOE) events, and some clinical and regulatory timing uncertainties. Overall sentiment leaned positive and strategic: short-term turbulence, but a clear roadmap to sustained growth and a return to 40%+ core margins by 2029.

Full-Year Sales, Record Margins and Cash Flow

Novartis closed the year with robust top- and bottom-line performance: sales rose 8% at constant currency, while core operating income grew 14% to $21.9 billion. The company achieved a 40.1% core margin—its 40%+ target reached two years ahead of schedule—highlighting strong operating leverage. Core EPS climbed 17% to $8.98, supported by both profit growth and share repurchases, and free cash flow hit a record $17.6 billion, up 8%. For investors, this combination of healthy revenue growth, expanding margins, and powerful cash generation underscores a business with high earnings quality and significant financial firepower to invest in R&D, business development, and shareholder returns.

Kisqali’s Surge Underpins Oncology Growth Story

Kisqali continues to emerge as a cornerstone oncology asset for Novartis, posting 57% growth for the year and 44% in Q4, with adjusted global growth of 54% and U.S. growth of 62% after removing R&D accounting adjustments. Management reiterated confidence in a $10 billion peak sales opportunity, citing particularly strong traction in early breast cancer (eBC): in the U.S., Kisqali now captures more than 60% of new-to-brand prescriptions (NBRx) in eBC, while in Germany it exceeds 80% NBRx share. Despite some quarterly gross-to-net noise impacting reported Q4 performance, underlying demand trends suggest Kisqali is consolidating a leadership position in its segment, reinforcing Novartis’ medium-term oncology revenue base.

Broad-Based Strength Across Multiple Blockbuster Brands

Beyond Kisqali, Novartis showcased a diversified stable of high-growth blockbuster medicines. Kesimpta rose 36% to $4.4 billion, with first-line multiple sclerosis adoption nearing 50% of NBRx, illustrating its expanding role earlier in the treatment pathway. Pluvicto sales grew 42% at constant currency to reach $2 billion, driven by 75% growth in U.S. pre-taxane use and a fourfold increase in PSMA share to 16%, indicating rising penetration in prostate cancer. Scemblix delivered breakout momentum with Q4 growth of 87% and a 41% U.S. NBRx share across all lines in chronic myeloid leukemia, while Leqvio posted 57% full-year growth and 46% growth in Q4, reinforcing its status as a growing cardiovascular franchise. Collectively, these brands help offset LOE risks and signal a sustainable multi-product growth engine.

Cosentyx and Specialty Launches Extend Immunology Reach

Cosentyx remained a key growth pillar, with sales up 8% to $6.7 billion and 11% in Q4, maintaining its position as the #1 prescribed IL‑17 across indications. U.S. performance was supported by newer indications such as hidradenitis suppurativa and incremental revenue from intravenous formulations. Novartis also completed a U.S. submission for Cosentyx in polymyalgia rheumatica, which, if approved, could further expand its addressable market. Cosentyx’s continued growth, even as the immunology space becomes more competitive, supports the company’s broader strategy of leveraging established biologics while rolling out new specialty launches.

Renal Portfolio Progress and Lifecycle Expansion

In renal disease, Novartis highlighted strong momentum from its IgA nephropathy (IgAN) brands Vanrafia and Fabhalta, which together drove 50% of NBRx market growth year-over-year. Fabhalta has now been approved in C3 glomerulopathy in 45 countries, underscoring rapid international uptake. Management guided to full eGFR datasets and regulatory filings for Fabhalta and Vanrafia in the first half of 2026, setting up potential label expansions and broader usage in chronic kidney disease populations. For investors, the renal franchise offers a medium-term growth vector with high unmet need and relatively limited competition compared to other therapeutic areas.

Rhapsido Launch Building with Early Demand Signals

Rhapsido’s U.S. launch is in its early stages but showing promising indicators. More than 2,000 healthcare professionals have initiated treatment via sampling and bridge programs, with positive feedback from allergists and dermatologists. While current volumes are modest, Novartis expects uptake to accelerate as payer access broadens, with a notable step-up anticipated in the second half of 2026. This measured, access-driven ramp is consistent with specialty launches in crowded markets, and suggests Rhapsido may become another meaningful contributor over time rather than an immediate blockbuster.

Pelabresib and a Busy 2026 Pivotal Readout Calendar

On the pipeline front, pelabresib remains a key hematology asset. Data from the 96-week MANIFEST study showed deep and durable responses with safety comparable to ruxolitinib in myelofibrosis. Novartis plans an EU filing pathway in 2026 and is preparing new Phase III programs in the U.S., China, and Japan targeting patients achieving meaningful symptom reduction (high-TSS50). More broadly, the company expects seven pivotal readouts in 2026, positioning that year as a catalyst-heavy period that could reshape Novartis’ midterm outlook. While execution risk remains, the breadth of late-stage assets provides multiple shots on goal to support growth beyond the upcoming LOE wave.

Global Health: Potential Breakthrough in Malaria

Novartis also spotlighted progress in global health with KLU156 (ganaplacide + lumefantrine), which showed strong malaria cure rates of 99.2% (adjusted) versus 96.4% for the comparator regimen. The combination has the potential to become the first new malaria treatment in roughly 25 years, reinforcing Novartis’ positioning as a leader in neglected tropical diseases. While contributions to revenue may be limited relative to oncology or immunology franchises, this program supports the company’s reputation, long-term partnerships in emerging markets, and broader ESG profile, which can carry indirect strategic and investor benefits.

Capital Allocation, Buybacks and Rising Dividend

Novartis underscored disciplined yet shareholder-friendly capital allocation. The company invested more than $10 billion in R&D, up 8% year-on-year, highlighting its commitment to pipeline development. At the same time, it completed a $15 billion share buyback and launched a new repurchase program of up to $10 billion, with roughly $7.7 billion still available. Management also proposed a dividend of CHF 3.70 per share, a 6% increase and the 29th consecutive annual rise in the dividend in Swiss francs. The combination of robust internal reinvestment and consistent capital returns signals confidence in long-term cash generation and earnings power.

Q4 Sales Softness and Gross-to-Net Volatility

Despite strong full-year results, Q4 sales edged down 1%, weighed by higher gross-to-net adjustments and the early impact of Entresto’s loss of exclusivity. Management emphasized that the quarter was unusually “noisy,” citing U.S. R&D accounting reclassifications and out-of-period gross-to-net items for key brands including Entresto, Promacta, and Tasigna. Some underperformance, such as for Kisqali, was pinned on one-time factors like higher-than-expected Medicare utilization affecting rebates and discounts, creating an artificially low baseline. For investors, this commentary suggests that Q4 results may understate underlying demand trends and should not be extrapolated linearly into 2026.

Generic Headwinds and the Peak 2026 GX Impact

A central theme of the call was the looming generic wave. Mid‑2025 U.S. generic entries for Entresto, Promacta, and Tasigna are already influencing expectations and will increasingly pressure revenue. Novartis flagged 2026 as the year with the largest generic (GX) impact in its history. Management anticipates first-half 2026 sales to decline in the low single digits and core operating income to fall in the low double digits, reflecting the full-year effect of LOE. While the blockbuster portfolio and pipeline are expected to offset these pressures over time, the near-term earnings profile will be more volatile as the company absorbs this significant patent cliff.

Near-Term Guidance and Avidity-Related Margin Dilution

For 2026, Novartis guided to low single-digit sales growth, but a low single-digit decline in core operating income, reflecting both generic pressure and a 1–2 percentage-point core-margin dilution from the Avidity acquisition. The deal, largely debt-funded, brings additional development and funding costs that temporarily compress margins but are intended to strengthen the company’s RNA-based therapeutics capabilities. Management reiterated that, despite this near-term dilution, the long-term financial framework remains intact, with a 5–6% sales CAGR targeted for 2025–2030 and a path back above 40% core margins by 2029. Investors will watch execution on integration and pipeline progress to judge whether the Avidity trade-off pays off.

Pelacarsen Timing and Event-Rate Uncertainty

One of the more technical risks discussed was pelacarsen and the HORIZON cardiovascular outcomes trial. Event rates in the study have been lower than initially modeled, pushing the readout into mid‑2026 and raising questions about the balance between baseline risk and treatment effect. Lower-than-expected event rates can complicate statistical power and make interpreting efficacy signals more challenging, even if the drug is effective. This uncertainty injects additional risk around one of Novartis’ potential large-scale cardiovascular assets and could influence how investors value the longer-term lipid-lowering and cardiovascular franchise.

Regulatory, Clinical and Timing Risks in the Pipeline

The company also outlined several regulatory and clinical timing issues. Remibrutinib, a BTK inhibitor, is subject to additional liver monitoring requests from the U.S. regulator, though no liver safety signals have been observed to date, leaving some residual uncertainty around the regulatory path. Pelabresib will require an additional Phase III study in certain regions, delaying some geographic expansion. In nephrology, the zigakibart Phase III protocol has been amended to align proteinuria (UPCR) measurement with an interim eGFR readout, pushing the key eGFR result into the first half of 2027 and delaying potential label timelines. While none of these issues appear thesis-breaking, they emphasize the inherent timing risk in the late-stage portfolio and could stagger the pace at which new revenue streams materialize.

MFN-Style Pricing Pressures and Market Access Strategy

Outside the U.S., Novartis highlighted the growing impact of Most-Favored-Nation (MFN)-style pricing rules, which can force companies to align prices across markets or accept narrower pricing corridors. For assets like ianalumab, this complicates launch strategy and may require more tactical sequencing or differentiated pricing by geography to protect returns. These dynamics increase market access complexity and could modestly temper ex-U.S. revenue potential for select launches, reinforcing the importance of careful pricing strategy and strong U.S. uptake to achieve targeted returns on innovation.

Forward-Looking Guidance and Medium-Term Outlook

Looking ahead, Novartis guided 2026 sales to grow at a low single-digit rate, with core operating income expected to decline in the low single digits, including 1–2 percentage points of margin dilution from the Avidity transaction. Management framed 2026 as a “year of two halves”: first-half sales are expected to be down low single digits and core operating income down low double digits, pressured by generics and a tough comparison from a roughly 2% favorable gross-to-net effect in the first quarter of 2025. The second half is projected to improve, with sales up mid single digits and core operating income rising mid to high single digits, delivering the full-year profile. At late-January foreign-exchange levels, the company expects a 2–3 percentage-point benefit to sales and about 1 percentage point to core operating income. Longer term, Novartis reiterated its ambition for 5–6% sales CAGR from 2025 to 2030 and a return to core margins above 40% by 2029, anchored by its current 40.1% margin, $21.9 billion core operating income, $8.98 core EPS, $17.6 billion free cash flow, and an increased dividend coupled with a sizable ongoing buyback program.

In summary, Novartis’ earnings call depicted a company in transition: delivering record profitability and robust multi-brand growth today while preparing for its largest-ever wave of generic competition and a cluster of pivotal readouts in 2026 and beyond. Short-term guidance reflects margin pressure and earnings volatility, but management’s confidence in its blockbuster portfolio, late-stage pipeline, and disciplined capital allocation strategy supports a constructive long-term view. For investors, the key watchpoints will be execution through the 2026 patent and pipeline inflection, the trajectory of high-growth franchises like Kisqali and Pluvicto, and confirmation that margins can indeed climb back above 40% as the next generation of products matures.