Novartis AG Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: Novartis delivered high single-digit sales growth, achieving 40.1% core margin 2 years ahead of plan. Full year sales up 8%, Core OpInc up 14%.
• Priority Brands: Kisqali, Kesimpta, Pluvicto, Leqvio, Scemblix, Cosentyx showed strong growth with respective market performances.
• Pipeline Progress: Remibrutinib submitted for CIndU, pelabresib has path forward for registration, Rhapsido U.S. launch encouraging, Itvisma has potential, renal portfolio making steady progress.
• Margin and Cash Flow: Recorded 40.1% core margin, with record free cash flow almost $18 billion.

Segment Performance

• Kisqali: Full year growth 57% to $4.8 billion. U.S. eBC NBRx above 60%, Germany over 80% NBRx share in early breast cancer.
• Kesimpta: Grew 36% to $4.4 billion. U.S. 27% Q4 growth, 50% of NBRx in first line. Ex-U.S. leading in 9 out of 10 major markets.
• Pluvicto: 42% constant currency Q4 growth, reached $2 billion globally. U.S. sales up 75%, PSMA share 16%. Japan and China approvals secured.
• Leqvio: Blockbuster status, 57% full year growth, 46% Q4 growth. U.S. outpacing advanced lipid lowering market.
• Scemblix: 87% Q4 growth, NBRx leadership in U.S. and Japan. First-line setting trending ahead of plan.
• Cosentyx: 8% full year growth, $6.7 billion, on track to $8 billion peak. U.S. 9% growth, leading IL-17 in HS naive patients.
• Renal Portfolio: IgAN portfolio contributed 50% of NBRx market growth. Fabhalta and Vanrafia steady, C3G adoption. Zigakibart protocol amended.
• Rhapsido: U.S. launch encouraging, strong demand, early access wins. Potential for large sales.
• Itvisma: U.S. approval, onetime gene therapy, potential $3 billion+ sales. Ex-U.S. approvals in UAE, Europe and Japan submissions.
• Pelabresib: Phase III MANIFEST program data showed deep responses, path forward for registration.

Guidance

• 2025: Delivered full year guidance, with high single-digit sales growth (8%) and low teens core OpInc (14%).
• 2026: Expect sales to grow low single-digit, core operating income to decline low single-digit. Impact of Avidity deal on core margin. First half of 2026 faces tough base from generic entries, second half expected to improve. FX impact on sales and core OpInc with positive 2-3 percentage point sales impact and 1% point core OpInc impact if exchange rates remain at late January levels.

Risks

• Regulatory Risks: Uncertainties in FDA and other regulatory approvals for pipeline products like pelacarsen and remibrutinib.
• Market Competition: Potential competition affecting market share of existing products such as Kisqali and Cosentyx.
• Pricing Pressures: Impact of MFN agreements and generic entries on pricing, especially for products like Entresto, Promacta, and Tasigna.

Question and Answer

Q: Sachin Jain from Bank of America asked about FDA conversations regarding liver monitoring for remibrutinib and efficacy targeting.

A: Vasant Narasimhan responded that remibrutinib has a safe label without liver safety issues, and efficacy is targeted based on target saturation and PK/PD design.

Q: Simon Baker from Rothschild & Co Redburn asked about remibrutinib's commercial opportunity in MS and risks in pelacarsen's study.

A: Vasant Narasimhan stated remibrutinib has a large market opportunity in MS beyond B-cell monoclonal antibodies, and pelacarsen's study is powered adequately to demonstrate targeted CVRR.

Q: Matthew Weston from UBS asked about Kisqali's outlook and oral SERDs' impact.

A: Vasant Narasimhan said Kisqali's gross to net impact is one-time, and oral SERDs will coexist with CDK4/6 inhibitors in the early breast cancer setting.

Q: Peter Verdult from BNP Paribas asked about ex-U.S. launch plans for Rhapsido and Ianalumab.

A: Vasant Narasimhan discussed strategies to manage Rhapsido's global launch and ongoing work on Ianalumab's pricing and launch in G7 markets.

Q: Steve Scala from TD Cowen asked about pelacarsen's HORIZON trial readout risks.

A: Vasant Narasimhan stated the study is powered appropriately, and event rates are influenced by patient risk factor management.

Q: Richard Vosser from JPMorgan asked about Itvisma's ramp.

A: Vasant Narasimhan said Itvisma's ramp will be faster than some brands, with a steady state expected over the first few years.

Q: Graham Parry from Citi asked about Kisqali's gross to net impact and oral SERDs' impact.

A: Vasant Narasimhan and Harry Kirsch discussed one-time nature of gross to net adjustments and confidence in Kisqali's future, with oral SERDs coexisting in the market.

Q: Seamus Fernandez from Guggenheim Securities asked about food allergy opportunity.

A: Vasant Narasimhan discussed remibrutinib's Phase II data in food allergy and potential for a significant market opportunity.

Q: James Gordon from Barclays asked about pelacarsen's efficacy and commercial prospects.

A: Vasant Narasimhan said pelacarsen can win with lower relative reductions and still have strong commercial prospects for patients with no other options.

Q: Michael Leuchten from Jefferies asked about SG&A performance and Avidity deal impact.

A: Harry Kirsch and Mukul Mehta discussed SG&A cost control, productivity plans, and margin dilution impact of the Avidity deal.

Q: Thibault Boutherin from Morgan Stanley asked about Cosentyx's HS market dynamic.

A: Vasant Narasimhan said market share has stabilized, with both Cosentyx and competitors growing in line with the market.

Q: James Quigley from Goldman Sachs asked about Lp(a) portfolio and DII235 trial.

A: Vasant Narasimhan discussed DII235's dosing interval and strategy to move into Phase III based on HORIZON data.

Q: Peter Verdult from BNP Paribas asked about cell therapy pipeline programs.

A: Vasant Narasimhan discussed enthusiasm for cell therapy programs, including YTB in pivotal studies for SLE lupus nephritis.

Q: Michael Leuchten from Jefferies asked about Scemblix's first-line share plateau.

A: Vasant Narasimhan said Scemblix's first-line share is trending ahead of plan, with focus on overcoming access perception.

Q: James Quigley from Goldman Sachs asked about Zigakibart's protocol delay.

A: Vasant Narasimhan explained the rationale for delaying to have a compelling data package with proneuria reduction and eGFR benefit for a strong market proposition.