Novartis AG Sponsored ADR (NVS.US) Q3 revenue up 4% year-over-year; long-term pipeline impairment weighs on net profit.

Novartis AG Sponsored ADR (NVS.US) released its Q3 2026 financial results on Tuesday. Quarterly net sales were US$14.522 billion, up 4% year-over-year (also up 4% at constant currencies), missing market expectations; core operating income was US$6.036 billion, up 11% year-over-year; core earnings per share were US$2.46, up 9% year-over-year, beating market expectations. Impacted by pipeline impairments and increased provisions, IFRS net income was US$1.196 billion, down 70% year-over-year, with earnings per share of US$0.63. Revenue: Five major products drive growth, Entresto generic impact continues Third-quarter sales growth was primarily driven by Kisqali (US$1.821 billion, +37%), Kesimpta (US$1.484 billion, +21%), Scemblix (US$593 million, +66%), Leqvio (US$506 million, +64%) and Cosentyx (US$1.857 billion, +9%). Volume growth contributed 14 percentage points, but generic competition was a 9 percentage point drag, mainly from Entresto (US$1.165 billion, -38%) and Promacta (US$142 million, -61%); pricing impact was -1 percentage point, and currency impact was neutral. By region, US sales were US$6.4 billion (+7%), Europe US$4.3 billion (+1%, +3% at constant currencies), and emerging growth markets US$3.8 billion (+11%, +8% at constant currencies), of which China sales were US$1.2 billion (+25%, +18% at constant currencies). Profit: Core margin improved, IFRS profit weighed down by one-off items Core operating margin was 41.6%, up 2.3 percentage points year-over-year, mainly benefiting from sales growth. IFRS operating income was US$1.843 billion, down 59% year-over-year, with an operating margin of 12.7%, down 19.7 percentage points. Main drags included: R&D expenses rose to US$5.150 billion (+75%) due to a US$1.9 billion partial impairment of the del-desiran IPR&D asset obtained from the Avidity acquisition; other expenses rose to US$1.575 billion due to increased provisions for long-term supply agreements and restructuring costs. The impairment stems from the September 2026 announcement that the Phase III HARBOR study in the DM1 indication did not meet its primary endpoint, with the asset's carrying value reduced to US$5.5 billion. Cash flow and balance sheet: Free cash flow declined, net debt rose Third-quarter operating cash flow was US$5.503 billion (-16%), and free cash flow was US$5.111 billion (-18%), mainly affected by unfavorable working capital movements and increased interest payments. For the first nine months, operating cash flow was US$15.061 billion (-11%), and free cash flow was US$14.002 billion (-12%). As of September 30, net debt rose to US$37.4 billion, up from US$21.9 billion at end-2025, mainly due to transactions including the acquisition of Avidity Biosciences (US$11.7 billion) and US$9.1 billion in annual dividends. The debt/equity ratio rose from 0.72:1 to 1.23:1. The company had liquidity of US$9 billion. Pipeline and outlook: Multiple product approvals, focus on regulatory approval progress Several innovative drugs were approved in the third quarter: Cosentyx received US approval for an intravenous formulation for hidradenitis suppurativa; Fabhalta received traditional US approval and Japanese approval for IgA nephropathy; Pluvicto received US and Chinese approval for metastatic hormone-sensitive prostate cancer; Rhapsido received US approval for chronic inducible urticaria; Vijoice received EU approval for PIK3CA-related overgrowth spectrum. Regarding pending approvals, Cosentyx's polymyalgia rheumatica indication has completed submissions in the US, EU and Japan and received a positive CHMP opinion; KLU156 (malaria) has been submitted in the US and received FDA priority review designation; KPE179 (DMD exon 44) received FDA priority review designation; Leqvio for pediatric hypercholesterolemia has been approved in the US; DAK539 (myelofibrosis) has been submitted in the EU; Vanrafia (IgA nephropathy) has been submitted in Japan and China. In addition, the company disclosed several pipeline adjustments: the Phase III HORIZON study of TQJ230 (pelacarsen) did not meet its primary endpoint; the LOU064 (remibrutinib) myasthenia gravis program was terminated following a futility analysis; the VHB937 (lifonebart) Alzheimer's disease and amyotrophic lateral sclerosis programs were terminated; and YTB323 was temporarily paused globally across multiple indications.