Novartis Lags Q3 Earnings, Announces $12B Avidity Biosciences Acquisition

Novartis reported Q3 core EPS of $2.25, slightly below consensus, but achieved an 8% sales increase to $13.9 billion, propelled by strong growth in key products like Kisqali, Kesimpta, Pluvicto, and Scemblix, which mitigated the impact of generic competition on drugs such as Entresto and Tasigna. Concurrently, the company announced a $12 billion acquisition of Avidity Biosciences to significantly enhance its late-stage neuroscience pipeline, alongside other strategic investments and new drug approvals, underscoring its commitment to pipeline expansion and innovation while maintaining its 2025 guidance for high single-digit net sales growth.

Analysis

Novartis reported Q3 core EPS of $2.25, a marginal miss against the Zacks Consensus Estimate by a penny, yet an increase from $2.06 year-over-year. Total revenues climbed 8% to $13.9 billion, marginally surpassing consensus, driven by strong constant currency sales growth of 7% and a 7% rise in core operating income to $5.5 billion. This performance was primarily fueled by key growth products such as Kisqali (+68% to $1.33B), Kesimpta (+44% to $1.2B), Pluvicto (+45% to $564M), and Scemblix (+95% to $358M), all of which exceeded analyst estimates.

Despite robust growth in new products, Novartis faced significant generic competition, notably impacting Entresto (-1% to $1.9B), Promacta (-38%), Tasigna (-48% to $221M), and Lucentis (-42%). The company is actively litigating to protect Entresto's intellectual property in the U.S. To counter these pressures and bolster future growth, Novartis announced a $12 billion acquisition of Avidity Biosciences (RNA) to enhance its late-stage neuroscience pipeline with three programs for genetic neuromuscular diseases, expected to close by H1 2026.

Beyond the Avidity acquisition, Novartis is strategically expanding its pipeline through other deals, including Tourmaline Bio for a cardiovascular candidate and collaborations with Monte Rosa and Arrowhead. Recent FDA approval for remibrutinib (Rhapsido) and positive Phase III results for ianalumab further underscore pipeline progress. The company reiterated its 2025 guidance for high single-digit net sales growth and low teens core operating income growth, reflecting confidence in its strategic direction despite competitive headwinds.

Key Decisions for Investors

• Monitor the integration and clinical progress of the $12 billion Avidity Biosciences acquisition, as it is crucial for strengthening Novartis's long-term neuroscience pipeline and offsetting generic erosion.
• Assess the ongoing impact of generic competition on key legacy drugs like Entresto and Tasigna, evaluating the effectiveness of Novartis's IP defense strategies and the ability of new growth drivers to fully compensate for these declines.
• Consider the current valuation of NVS shares, which have gained 35.9% YTD, against the backdrop of strong product growth, strategic pipeline expansion, and the reiterated 2025 guidance, while acknowledging the Zacks #3 (Hold) ranking.