Novartis AG Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Performance: Q3 net sales grew 10%, core operating income rose 20%, and core margin was 40.1%. Full-year guidance was raised, with sales expected to grow in the low double digits and core operating income in the high teens.
• Innovation Milestones: Key milestones included Kisqali's FDA approval and CHMP positive opinion in early breast cancer, Fabhalta's accelerated approval in IgA nephropathy, Pluvicto's PSMAfore filing acceptance, and Scemblix's FDA priority review.
• Growth Drivers: Strong performance across key brands like Entresto, Cosentyx, Kesimpta, and Kisqali contributed to continued margin expansion and free cash flow generation.

Segment Performance

• Entresto: Sales increased 26% in Q3, with 25% TRx growth, 20% NBRx growth, and 500,000 TRx per month. Ex-U.S. growth was 26%. Guidance for U.S. LoE is mid-2025, and EU regulatory data protection expires in Nov 2026.
• Cosentyx: Grew 28%, driven by strong performance in new HS and IV launches. 38% growth in the U.S. and 16% outside the U.S. in constant currency. Leading IL-17 in the U.S. dynamic market and leading originator biologic in EU and China.
• Kesimpta: Saw 28% growth, with 56% growth in constant currency when stripping out one-time RD adjustment. Over 100,000 patients treated worldwide, and ALITHIOS trial showed 90% of first-line patients had no disability progression.
• Kisqali: Grew 43% in Q3. U.S. up 50%, NBRx share 48%, second in TRx share. 36% constant currency growth outside the U.S. FDA approved with broad label, and CHMP issued a positive opinion.
• Pluvicto: Had 50% growth in Q3. PSMAfore filing accepted by FDA, preparing for H1 2025 launch. Ex-U.S. launch progressing, with manufacturing facilities built in China and Japan.
• Leqvio: Continued strong growth, outpacing the advanced lipid lowering market. 4,600 facilities ordered Leqvio. Reimbursed in 39 countries and commercially available in 73. V-MONO trial showed superiority in LDL-C reduction.
• Scemblix: Grew 72% in Q3. Market leader in NBRx and TRx for third-line CML. FDA priority review, expected approval in coming weeks. Submissions completed in China and Japan, EU submission planned in 2025.
• Fabhalta: Early days but had strong launch performance. Accelerated approval in U.S. for IgA nephropathy. APPEAR-C3G data showed sustained proteinuria reduction.

Guidance

• Full-Year Adjustment: Sales growth was revised to a low double-digit range (previously high-single to low double-digit), and core operating income growth to the high teens (previously mid to high teens). Assumes no U.S. generic entries in 2024, with generic entries expected in mid-2025 for forecasting.
• Long-Term Outlook: Committed to 5% sales growth from 2023 to 2028 and core operating income margin above 40% by 2027.

Risks

• Generic Entries: Potential impact of U.S. generic entries for Tasigna, Promacta, and Entresto in 2025, which could affect sales and margins.
• Regulatory Uncertainties: Uncertainties around patent litigations and regulatory approvals for new indications and launches.
• Payer Dynamics: Impact of coverage gap reform, rebate environments, and reimbursement challenges in various markets.

Question and Answer

• Q: Impact of coverage gap reform on Cosentyx and Entresto? A: Seen as neutral to slightly negative, already factored into long-term guidance.
• Q: When will Pluvicto patient growth in U.S. vision population impact sales? A: Expect inflection once PSMAfore is launched, with promotional efforts starting to show impact in 6 months.
• Q: Tailwinds and headwinds for 2025? A: Tailwinds include new indications/launches; headwinds include U.S. generic entries for Tasigna, Promacta, Entresto.
• Q: Competitive dynamics for Cosentyx in HS? A: Confident in maintaining position due to strong clinical data, account positioning, and growing market.
• Q: Pluvicto ex-U.S. growth and PSMAfore review acceleration? A: Ex-U.S. growth delayed by pricing dynamics and market negotiations; PSMAfore review not accelerated via priority review voucher as FDA wanted flexibility.