Novartis Beats Profit Target Ahead of Schedule, Charts Course Through Generic Headwinds
BASEL – Novartis AG (NYSE: NVS) delivered a strong finish to its strategic transformation, announcing full-year 2025 results that surpassed expectations. The company achieved its ambitious 40% core operating income margin target two years ahead of schedule, a milestone that underscores the success of its focus on innovative medicines.
For the full year, sales grew 8% to reach CHF 53.6 billion, while core operating income jumped 14% to CHF 21.9 billion. Core earnings per share rose 17% to $8.98. Free cash flow hit a record CHF 17.6 billion. "We have fundamentally reshaped Novartis," said CEO Dr. Vas Narasimhan on the earnings call. "Reaching a 40.1% core margin well ahead of plan provides a powerful foundation for our next chapter of growth."
The fourth quarter, however, presented a mixed picture, with sales dipping 1% amid significant headwinds. CFO Harry Kirsch attributed the "noisy" results primarily to U.S. R&D accounting adjustments and, more consequentially, the mid-2025 entry of generic competitors for key drugs like heart failure treatment Entresto. Excluding these effects, underlying Q4 sales would have grown 3%, management noted.
Looking ahead, 2026 is projected to be a transitional year. Incoming CFO Mukul Mehta, set to take the reins in March, provided guidance anticipating low single-digit sales growth and a slight decline in core operating income. This reflects what he termed the "highest generic impact" in company history, concentrated in the first half. The recently announced acquisition of Avidity Biosciences is also expected to dilute margins by 1-2 percentage points. Mehta described 2026 as "a year of two halves," with a return to mid-single-digit sales growth anticipated in the latter six months.
Despite the near-term generic pressure, Narasimhan expressed strong confidence in the company's long-term drivers. He highlighted a group of growth brands—including Kesimpta, Pluvicto, and Leqvio—which collectively grew 35% in 2025 and are expected to fuel performance "through the end of the decade."
The pipeline also offered several bright spots. Narasimhan detailed a clear regulatory path for pelabresib in myelofibrosis, based on compelling 96-week data, with an EU filing planned for 2026. For the promising BTK inhibitor remibrutinib in chronic hives, the company is preparing to advocate for its current favorable label following Phase III data. Additionally, Novartis showcased progress in global health, with a novel three-day malaria combination therapy demonstrating a high cure rate in studies.
On capital allocation, the company completed a CHF 15 billion share buyback program and launched a new up to CHF 10 billion program through 2027. It also proposed a dividend of CHF 3.70 per share, marking its 29th consecutive annual increase in Swiss francs.
Market Voices: Analyst & Investor Reactions
Dr. Anya Sharma, Healthcare Portfolio Manager at Helvetica Capital: "The early margin achievement is a testament to disciplined execution. The 2026 guidance is prudent, clearly telegraphing the generic erosion. The key for investors is whether the growth portfolio can accelerate fast enough to fill the gap, and the pipeline updates today were reassuring on that front."
Michael T. Rossi, Independent Biotech Analyst: "They're trying to have it both ways—celebrating peak margins while warning of a down year. The 'year of two halves' narrative feels like a delay tactic. The Avidity deal is a bold, expensive bet on a platform; they're paying up for innovation they couldn't develop internally."
Sarah Chen, Retail Investor & Founder of 'The Pharma Diary' Blog: "As a long-term shareholder, I'm thrilled with the record cash flow and dividend hike. It shows commitment to returning capital. The generic wave was always coming; I'm more interested in the malaria drug data—that's the kind of impactful work that defines a company's legacy."
David Forsythe, Former Pharma Exec & Industry Consultant: "Kirsch's departure marks the end of an era of financial restructuring. Mehta's first guidance sets a low bar, which is smart. The real story is the pipeline: pelabresib and remibrutinib are potential blockbusters. If they win in myelofibrosis, it changes the competitive landscape entirely."