Novartis Earnings: Solid Results Led by Top Drugs as Pipeline Development Progresses Well

Novartis NOVN posted third-quarter earnings largely in line with our expectations and we are not making any changes to the firm’s fair value estimate of CHF 85. At the current stock price, we believe the market is appropriately viewing the firm’s growth potential with a mix of major patent losses, offset by a strong innovative pipeline that supports the firm’s wide moat.

In the quarter, Novartis posted 12% operational growth, but we expect this growth to decelerate over the next three years as patent pressures increase. Cardiovascular drug Entresto (up 31%) represents the firm’s largest drug and should continue to post gains until the patent losses occur most likely in 2026 for key markets. The firm’s second-largest product, immunology drug Cosentyx, grew 4% as the market gets saturated and stronger competition limits the drug’s potential. Multiple sclerosis drug Kesimpta has already grown into the firm’s third-largest drug and posted 86% normalized growth. With shared leading efficacy with Roche’s Ocrevus, we expect both drugs to continue to post robust growth as they control less than half of the market. Additionally, breast cancer drug Kisqali (up 76%) is finally making significant progress in the metastatic setting with leading overall survival data. Kisqali’s likely addition of the adjuvant indication in 2024 should further propel growth.

Offsetting the robust quarterly growth, patent pressures from multiple sclerosis drug Gilenya, cancer drug Tasigna, and acromegaly drug Sandostatin will likely weigh on growth over the next two years.

Novartis is making progress in developing the next generation of drugs to propel long-term growth. Recently released Pluvicto data in second-line prostate cancer suggests the drug holds potential of well over $2 billion annually. Also, rare-disease drug iptacopan posted favorable data in IgA nephropathy, setting up potential approval in one of several likely indications and supporting peak annual sales potential of over $2 billion.