Novartis backs full year forecast after $6 billion profit beat helped by one-offs
Novartis Q2 Results and Outlook
By Bhanvi Satija and Marleen Kaesebier
LONDON, July 21 - Novartis beat second-quarter profit forecasts and kept its 2026 outlook unchanged on Tuesday, saying one-off benefits that helped the quarter would reverse as it increases research and launch spending in the second half.
The Swiss drugmaker's shares rose as much as 3% after it reported quarterly core operating profit of $5.94 billion, above analysts' predictions of about $5.31 billion cited by Visible Alpha.
Investor Focus on Future Growth
Investors are closely watching several trial readouts expected later this year that could determine whether Novartis can sustain growth beyond its current patent cliff and support its premium valuation.
Key Experimental Drugs and Sales Potential
Late-stage data for three experimental drugs — pelacarsen in cardiovascular disease, remibrutinib in multiple sclerosis and del-desiran in myotonic dystrophy type 1 — represent a roughly $10 billion peak annual sales opportunity, according to analyst estimates.
"That first batch should come in the coming months," Chief Executive Vas Narasimhan told reporters, referring to the three trial results. He did not give a more precise timing.
Patent Expiries and Market Position
Novartis, which has a market capitalization of about $310 billion after a 14% share rise so far this year, faces its most intense period of patent expiries, most notably for heart drug Entresto, which accounted for about 10% of total sales.
"Because they're getting hit by generic competition, patent cliffs are coming up, and there's only so much M&A you can do, the next stage is your pipeline," said James Eugene, analyst at Novartis shareholder Verso Investment Management.
Strategy Beyond Patent Cliff
Narasimhan also said Novartis did not need large deals, citing confidence in its internal pipeline. He said he planned to stay at Novartis for its next phase of growth as the company moves past the Entresto patent cliff.
Financial Performance and Spending
Higher Spending in Second Half
HIGHER SPENDING IN SECOND HALF
Novartis backed its forecast for low-single-digit sales growth and a low-single-digit decline in core operating profit this year, both excluding currency swings.
Chief Financial Officer Mukul Mehta said temporary sales and cost benefits boosted second-quarter sales by about 1% and core operating profit by about 5%, but these would reverse in the second half.
SG&A Expenses and Acquisitions
Novartis said core SG&A expenses fell 6% to $3.24 billion, helped by productivity gains, but analysts expect costs to rise from the third quarter as it absorbs its $12 billion acquisition of Avidity Biosciences and launches newer drugs.
Return to Sales Growth
RETURN TO SALES GROWTH
A U.S. inventory benefit for psoriasis drug Cosentyx and cost control helped Novartis post a 1% constant-currency rise in quarterly sales to $14.41 billion, ahead of expectations and its previous guidance for growth to return in the second half.
Kisqali sales rose 44% to $1.7 billion, Scemblix nearly doubled to $562 million and Cosentyx grew 12% to $1.82 billion, helped by a roughly $100 million stocking benefit.
Entresto sales fell 50% to $1.18 billion, worse than analysts forecast, due to generic competition in the U.S., its largest market. Entresto sales are expected to fall by $4 billion this year.
Analyst Commentary on Guidance
Vontobel analyst Stefan Schneider said the strong quarter did not trigger a guidance upgrade because timing of cost spending had "just moved around things" within the year.
(Reporting by Bhanvi Satija and Marleen Kaesebier; Editing by Miranda Murray, Alexander Smith and Jon Boyle)
