Novartis lifts full-year profit forecast, announces $10 billion share buyback

Novartis upgraded its full-year core operating income forecast to low-teens growth and initiated a new $10 billion share buyback program, reflecting strong confidence underpinned by robust Q2 performance, notably 64% sales growth for Kisqali. However, this positive outlook is balanced by a recent U.S. patent litigation setback for its blockbuster Entresto, where a judge rejected an injunction against generic entry, introducing potential earlier generic competition despite Novartis's mid-2025 projection. The company also announced the upcoming retirement of long-serving CFO Harry Kirsch in March 2026.

Analysis

Novartis has demonstrated significant operational strength, leading to an upgraded full-year core operating income growth forecast to the "low-teens" and the initiation of a substantial $10 billion share buyback program. This confidence is underpinned by a robust second quarter, where core operating profit grew 21% at constant currency to $5.925 billion, surpassing analyst consensus of $5.75 billion. The performance was driven by exceptional growth from key drugs, with breast cancer treatment Kisqali sales surging 64% to $1.2 billion and multiple sclerosis drug Kesimpta growing 35% to $1.1 billion. However, this positive momentum is juxtaposed with a material risk to its blockbuster heart medication, Entresto, which saw sales grow 24% to $2.36 billion. A recent US court decision rejected a preliminary injunction against a generic competitor, increasing the probability of generic entry before the company's standing forecast of mid-2025. The decision to raise full-year guidance despite this legal setback highlights management's confidence in its current portfolio but also introduces a key uncertainty for investors, as an earlier-than-expected generic launch would significantly impact future earnings.

Key Decisions for Investors

• Investors should weigh the company's strong execution, evidenced by the upgraded guidance and the $10 billion buyback, against the significant overhang from the Entresto patent litigation.
• The primary risk to monitor is any new development in the Entresto legal case, as a generic launch prior to the company's mid-2025 assumption would materially invalidate the current earnings outlook.
• It is prudent to assess if the market is adequately pricing in the risk of an accelerated Entresto generic entry, as the current positive momentum in other key franchises like Kisqali could be overshadowed by this single event.
• The planned CFO succession in 2026 with an internal candidate suggests leadership continuity and should be viewed as a low-impact event for the near-term investment thesis.