Novartis AG Q3 FY2026 earnings call

• Pipeline Milestones: Remibrutinib demonstrated comprehensive disease control and favorable safety in MS trials; FDA submission on track for Q4 with priority review voucher. Delandistrogene moxeparvovec (Delzola) received FDA priority review for DMD. Palbociclib filed in Europe. Rapsido gained FDA approval for symptomatic dermagraphism.
• Brand Performance: Kaskaly maintained leadership in early breast cancer with stable US/Germany shares and accelerating international growth. Kesimpta showed strong first-line/first-switch adoption. Brikivia accelerated in ex-US markets. Letio outgrew the market with high persistence. Semblix reached market leadership in US first-line. Rapsido launched strongly in CSU and SD.
• Strategic Updates: Upgraded full-year guidance due to strong bottom-line performance. Continued investment in internal R&D and selective M&A (Myrexis Bio, Seronaxis option). Maintained focus on SG&A productivity to achieve >40% margin by 2029.
• Divestments/Impairments: Took a $1.9 billion partial impairment charge on Delandistrogene moxeparvovec following Phase 3 Harbor readout not meeting primary endpoint. Horizon trial for DII-235 also did not meet primary endpoint.

Net sales grew 4% in constant currency to $14.5 billion. Core operating income increased 10% to $6 billion, with a core operating margin of 41.6%. Priority brands drove significant growth: Kaskaly (up 37%), Kesimpta (up 22%), Brikivia (up 20%), Letio (up 63%), Semblix (up 67%), Cosentix (up 9%), and Rapsido (strong launch momentum). Pluvicto was in the early stages of its HSPC launch. Overall, priority brands contributed substantially to the top-line growth, offsetting generic erosion.

• Full Year 2026 Core Operating Income: Raised from low single-digit decline to 'in line to growing low single-digit' growth.
• Full Year 2026 Net Sales: Maintained at low single-digit growth.
• Full Year 2026 Other Metrics: Core net financial expense expected at $1.7 billion; core tax rate around 16.5%.
• H2 2026 Expectations: Net sales mid-to-high single-digit growth; Core operating income high-single to low-double digit growth.
• Long-Term Outlook: Reaffirmed 5% to 6% constant currency sales growth for 2025–2030 and mid-single-digit long-term growth outlook.

• Generic/Biosimilar Erosion: US interest/generic erosion impacted H1 2026 results. Zolair biosimilars in the US are expected to pressure 'other revenue' and margins over the next few years.
• Pipeline Failures: Delandistrogene moxeparvovec failed Phase 3 Harbor endpoint; DII-235 (Horizon) failed Phase 3. These events led to a $1.9 billion impairment and timeline shifts.
• Regulatory Uncertainty: Ongoing label discussions with FDA for Yanalamab and Remibrutinib. Potential impact of new radiation exposure guidelines on Pluvicto site administration (though currently no observed impact).
• Competitive Landscape: Intensifying competition in MS (Kesimpta vs. injectables/sub-Q), Breast Cancer (Kaskaly vs. competitors), and Kidney Disease (IgAN portfolio vs. anti-APRs).

Q: What are the key drivers for 2027 growth given limited LOE?

A: Management expects dynamic growth driven by launches and accelerations from key brands including Kaskaly, Kesimpta, Brikivia, Pluvicto (HSPC), Remibrutinib (CSU/SD), and the upcoming Yanalamab launch. They anticipate navigating country-by-country Entresto headwinds but expect overall strong momentum as generic impacts diminish.

Q: What is the rationale and expected outcome for the Ocrevus-to-Remibrutinib switching study?

A: The goal is to show that once patients are controlled on anti-CD20s, they can maintain disease control via MRI and disability measures using oral Remibrutinib without complete B-cell depletion. This targets patients seeking oral options or those experiencing side effects from injections, aiming to demonstrate non-inferiority or superiority in maintaining control.

Q: How durable are the SG&A cost reductions seen in Q3?

A: Management views SG&A productivity as a durable pillar, citing a 7% reduction in Q3 despite 4% top-line growth. This stems from aggressive cuts in third-party spend (agency, travel, consulting) leveraging AI and technology. They remain committed to achieving >40% core operating margins by 2029 through continued SG&A efficiency.

Q: What is the status of the Yanalamab FDA approval delay?

A: The delay is due to ongoing label discussions with the FDA regarding how best to describe patient benefits and target populations based on robust but nuanced data. Management confirms they are providing real-time analyses and expects an action before the end of the year.

Q: What is the post-Harbor development plan for Delandistrogene moxeparvovec?

A: Management is conducting a deep analysis of trial data and open-label extension results to inform the next steps. They assume another Phase 3 study will be required to bring the medicine to patients. The $1.9B impairment reflects timeline shifts and updated value assessments, not necessarily a change in probability assumptions.