Novartis Beats Q2 Profit Forecasts But Reaffirms Cautious Full-Year Outlook

Swiss drugmaker Novartis AG reported second-quarter earnings that surpassed analyst expectations on Tuesday but maintained its full-year forecast, signaling that temporary benefits from the period will reverse as spending increases in the second half of the year.

The company's shares rose as much as 3% following the announcement.

Profit Beat Driven by Temporary Factors

Novartis posted a quarterly core operating profit of $5.94 billion, significantly ahead of the $5.31 billion average analyst forecast cited by Visible Alpha. The company attributed the strong performance to temporary sales and cost benefits that boosted core operating profit by about 5%.

According to Chief Financial Officer Mukul Mehta, these one-time effects are expected to reverse later in the year. The quarter was also helped by a 6% decline in core selling, general, and administrative (SG&A) expenses to $3.24 billion, which the company linked to productivity gains. Quarterly sales saw a 1% rise in constant currency to $14.41 billion.

Cautious Outlook Amid Patent Cliff

Despite the strong quarter, Novartis reaffirmed its full-year guidance for low-single-digit sales growth and a low-single-digit decline in core operating profit. Analysts noted that the beat did not trigger a guidance upgrade because the timing of cost spending had shifted within the year, with higher research and launch-related expenses anticipated in the third and fourth quarters.

Ad

The cautious outlook comes as Novartis navigates a significant period of patent expiries, most notably for its blockbuster heart drug Entresto. Sales for Entresto fell 50% to $1.18 billion due to generic competition in the U.S., a steeper decline than analysts had forecast. The company expects Entresto sales to fall by approximately $4 billion this year.

Pipeline in Focus for Future Growth

While Entresto sales declined, Novartis saw strong growth from other key products, offsetting the impact:

• Kisqali (breast cancer drug): Sales rose 44% to $1.7 billion.
• Scemblix (leukemia treatment): Sales nearly doubled to $562 million.
• Cosentyx (psoriasis drug): Sales grew 12% to $1.82 billion, aided by a U.S. stocking benefit of about $100 million.

Investors are now closely watching for late-stage trial results for three experimental drugs, which represent an estimated $10 billion in peak annual sales potential. Chief Executive Vas Narasimhan told reporters that results for pelacarsen, remibrutinib, and del-desiran should arrive in the coming months, expressing confidence in the company's internal pipeline over the need for large-scale acquisitions.