Novartis shares fall as Q3 profit misses estimates, outlook reaffirmed

Investing.com -- Shares of Novartis AG fell more than 3% on Tuesday after the Swiss drugmaker reported third-quarter profit slightly below expectations, as softer margins and higher research spending offset steady sales growth in cancer, neurology and immunology medicines. The company reaffirmed its full-year outlook.

Novartis said operating income rose 27% in constant currencies to $4.5 billion, driven by higher revenue and lower impairments, partly offset by increased research and development costs. 

Net income increased 25% in constant currencies to $3.9 billion, while earnings per share climbed 31% to $2.04. 

Net sales grew 8% to $13.9 billion, or 7% in constant currencies. Core operating income rose 7% to $5.46 billion, maintaining a 39.3% margin, and free cash flow increased 4% to $6.2 billion.

“Novartis delivered solid financial performance in Q3, more than offsetting the impact of increasing generic erosion in the U.S.,” chief executive Vas Narasimhan said in a statement. 

“Our key growth drivers performed well, including Kisqali, Kesimpta, Pluvicto and Scemblix. We remain well on track to achieve our guidance for 2025 and over the mid-term.”

Analysts at Jefferies said sales were broadly in line with forecasts, but profits were about 1% below consensus, with core earnings per share 2% under. 

The brokerage cited a softer gross margin, reflecting the impact of Pluvicto’s product mix, and higher R&D from acquisitions, partly offset by lower selling, general and administrative expenses. The core operating margin of 39.3% was 50 basis points below consensus, Jefferies said.

Among key drugs, breast cancer therapy Kisqali rose 68% in constant currencies to $1.33 billion, multiple sclerosis treatment Kesimpta increased 44% to $1.22 billion and radioligand therapy Pluvicto advanced 45% to $564 million. Leukemia medicine Scemblix nearly doubled to $358 million, while cholesterol treatment Leqvio grew 54% to $308 million and rare disease therapy Fabhalta climbed 236% to $149 million. 

Autoimmune drug Cosentyx was broadly stable at $1.7 billion, coming in 3% below consensus because of a $74 million U.S. adjustment, which Jefferies said would have left it 1% ahead excluding that item. 

Softer performances from heart failure drug Entresto and thrombocytopenia therapy Promacta reflected greater generic competition in the U.S.

For the first nine months of 2025, the Basel-based pharmaceutical group reported net sales of $41.2 billion, up 11% in both constant and reported currencies. Operating income rose 31% to $14 billion, net income climbed 29% to $11.6 billion and core operating income reached $17 billion, up 18%. Free cash flow increased 26% to $15.9 billion.

Novartis reaffirmed its 2025 forecast for net sales to grow at a high single-digit rate and for core operating income to rise in the low teens, both in constant currencies. 

Jefferies said consensus estimates remain slightly above the upper end of that range, implying possible modest profit forecast reductions of about 1%.

The company repurchased 66.4 million shares for $7.5 billion in the first nine months, completing a $15 billion buyback and beginning a new $10 billion program. Net debt rose to $20.4 billion as of Sept. 30 from $16.1 billion at the end of 2024.

Novartis expects foreign exchange effects for the year to be neutral to positive 1 percentage point on net sales and negative 2 points on core operating income if current rates persist.