Novartis AG Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Product Launches: Rhapsido received FDA approval for CSU, Ianalumab showed positive Phase III results, Pluvicto saw growth from pre-taxane launch, Kisqali presented 5-year data, Cosentyx had positive Phase III in PMR.
• Pipeline Progress: Progress on remibrutinib (Rhapsido), label expansion for Pluvicto, APRIL BAFF data expected next year for IgAN.
• Financials: Net sales grew 7% in Q3, core operating income up 7%, core margin 39.3%, free cash flow $6.2 billion in Q3; first 9 months net sales up 11%, core operating income up 18%, core margin 41.2%.
• Acquisition: Acquisition of Avidity raises 2024-2029 sales average growth rate from 5% to 6%, supporting long-term mid-single-digit growth.

Segment Performance

• Kisqali: Grew 68% in Q3, U.S. growth 91%, early breast cancer share 63%, leading in NBRx and TRx for metastatic breast cancer. Absolute growth: 68% Q3. Revenue contribution: Strong due to key growth driver.
• Kesimpta: Grew 44% in Q3, 45% growth in U.S., leader in NBRx share in 8 out of 10 major markets. Absolute growth: 44% Q3. Revenue contribution: Significant demand-driven growth.
• Pluvicto: Grew 45% in constant currencies, U.S. growth 53%, pre-taxane launch driving growth. Absolute growth: 45% constant currency. Revenue contribution: Momentum from pre-taxane approval.
• Scemblix: Grew 95% in constant currencies, NBRx leader in second and third line, early line approved in 26 countries. Absolute growth: 95% constant currency. Revenue contribution: Strong in multiple lines of therapy.
• Leqvio: Up 54% in the quarter, on track for over $1 billion in sales, U.S. up 45%, strong performance outside U.S. Absolute growth: 54% Q3. Revenue contribution: Steady growth both domestically and internationally.
• Cosentyx: Mixed quarter, impacted by one-time effect, but confident in $8 billion peak sales potential, positive Phase III in PMR. Absolute growth: -1% constant currency. Revenue contribution: Impacted by one-time effect but confident in peak potential.
• Renal Portfolio (Fabhalta, IgAN): Fabhalta eGFR data positive, IgAN portfolio grew 98%, NBRx share 18%. Absolute growth: Fabhalta positive, IgAN 98% growth. Revenue contribution: Growing traction in renal market.
• Rhapsido: Approved by FDA for CSU, oral targeted BTK inhibitor with rapid onset. Absolute growth: N/A. Revenue contribution: New approval with potential for rapid uptake.
• Ianalumab: Positive Phase III studies, regulatory submissions on track for H1 2026. Absolute growth: N/A. Revenue contribution: Potential from positive Phase III results.

Guidance

• Full Year 2025: High single-digit net sales growth, low teens core operating income growth, core net financial expenses slightly higher at $1.1 billion (vs prior $1.0 billion), core tax rate 16%-16.5%.
• Quarter 4 2025: Underlying growth low single digit top line, mid-single digit bottom line, impacted by generics; first half 2026 depressed by generics, second half stronger.
• Exchange Rates: 2025 impact on net sales 0%-1%, core operating income -2%; 2026 slight positive 1% point on net sales, no material impact on core operating income.
• Avidity Acquisition: Raises 2024-2029 sales average growth rate from 5% to 6%, supports long-term mid-single-digit growth.

Risks

• Generic Erosions: Impact on Entresto, Tasigna, Promacta in U.S. due to generics.
• Payer Negotiations: Challenges in reimbursing new therapies like Rhapsido in Europe, potential for unfavorable reimbursement.
• Market Variability: Uncertainties in market reception of new data, e.g., Ianalumab ESSDAI index results.
• Regulatory Delays: Potential delays in regulatory submissions for new therapies like Ianalumab and Rhapsido.

Question and Answer

• **Q: Matthew Weston from UBS asked about industry deals with the White House and CapEx.

A: Vasant Narasimhan noted ongoing negotiations with the administration, emphasizing proper reward for innovation; Harry Kirsch stated CapEx typically 2.5%-3% of sales, not expecting significant increase.

• **Q: Peter Verdult from BNP Paribas asked about market reaction to ACR abstract for Ianalumab.

A: Vasant Narasimhan mentioned detailed data to be presented Thursday, focusing on individual patient benefits like fatigue and salivary flow.

• **Q: Steve Scala from TD Cowen asked about Novartis' long-term revenue guidance.

A: Vasant Narasimhan said most from in-line brands like Kisqali, Kesimpta, with contributions from pipeline launches like Rhapsido and Pluvicto label expansion.

• **Q: Shirley Chen from Barclays asked about Pluvicto launch curve.

A: Vasant Narasimhan said Pluvicto on steep part of curve, Q4 growth expected, confident in $5 billion peak sales with HSPC indication.

• **Q: Florent Cespedes from Bernstein asked about Rhapsido ramp-up.

A: Vasant Narasimhan said initial uptake in Q2 2026, goal to be pre-biologic, focusing on payer negotiations in Europe for appropriate reimbursement.

• **Q: James Quigley from Goldman Sachs asked about Ianalumab study design.

A: Vasant Narasimhan stated detailed data to be presented Thursday, emphasizing individual patient benefits over ESSDAI score.

• **Q: Richard Vosser from JPMorgan asked about Kesimpta and OCREVUS subcu.

A: Vasant Narasimhan said Kesimpta holding share in growing MS market, progressing Q2-month formulation for life cycle management.

• **Q: Thibault Boutherin from Morgan Stanley asked about abelacimab in AFib.

A: Vasant Narasimhan said abelacimab has multibillion potential, dependent on competitor oral Phase III results.

• **Q: Michael Leuchten from Jefferies asked about Cosentyx pricing and step-up dosing.

A: Vasant Narasimhan said stable pricing, 25% of patients moving to every other week dosing to retain share.

• **Q: Rajesh Kumar from HSBC asked about margin cadence in 2026.

A: Harry Kirsch said gross margin headwinds offset by SG&A productivity, expecting core margin around 40% with Avidity acquisition causing 1-2 point dilution initially.