Novartis AG Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 Performance: Novartis delivered one of the strongest performances in history. Q4 sales grew 16% and core operating income grew 29% in constant currency; full year sales grew 12% and core operating income grew 22%, with margin reaching 38.7%.
• Pipeline Highlights: Notable progress in Scemblix, Kisqali, Pluvicto, Leqvio, Fabhalta, OAV101, votoplam, etc. Key launches and readouts in various therapeutic areas.
• Innovation Momentum: Robust regulatory decisions, submissions, readouts, and Phase 3 starts across multiple therapeutic areas, including approvals for Kisqali in early breast cancer and Fabhalta in PNH and IgAN.

Segment Performance

• Priority Brands: Grew 38% in constant currencies; excluding Entresto, grew 41%.
• Entresto: Full year sales reached $7.8 billion, up 31%. U.S. sales grew 41%, with strong performance in international markets including China and Japan.
• Cosentyx: Full year sales topped $6 billion, growing 25%. Q4 U.S. sales up 36%, ex-U.S. had 7% constant currency growth.
• Kesimpta: Full year grew 49% to $3.2 billion. U.S. sales up 42%, ex-U.S. had 67% constant currency growth.
• Kisqali: Full year grew 49% to $3 billion. Q4 U.S. sales up 65%, ex-U.S. had 34% constant currency growth.
• Pluvicto: Full year sales $1.4 billion, 42% constant currency growth. Q4 sales up 28%.
• Leqvio: Full year 114% constant currency growth.
• Scemblix: Full year grew 68%.
• Fabhalta: Launched in PNH and IgAN, with 23% volume growth in PNH.

Guidance

• 2024: Met and exceeded full year guidance.
• 2025: Expect continued strong sales growth with margin expansion. Anticipates mid to high single-digit sales growth and high single to low double-digit core operating income growth. Factors in potential generic entries for certain products but remains confident in underlying volume growth and productivity initiatives. Mid-term: Confident in 5% plus sales growth out to 2029 and aiming for 40% plus margin by 2027.

Risks

• Patent and Exclusivity Risks: Potential generic entries for Entresto in Europe and Japan, with ongoing legal efforts to protect exclusivity. Uncertainties around patent litigations and regulatory decisions impacting product exclusivity.
• Pipeline Risks: High-risk programs like Huntington's disease, where past failures in the area pose challenges; potential uncertainties in clinical trial outcomes for pipeline assets such as the PIVOT HD trial for votoplam.

Question and Answer

Q: Florent Cespedes on guidance and Entresto generics impact A: Harry Kirsch noted sales growth from strong brands and launches as a starting base, with moderate margin increase expected despite generic entry impacts, citing SG&A efficiencies offsetting gross margin pressure.

Q: Simon Baker on gross margin resilience A: Harry Kirsch stated SG&A efficiencies would more than offset any gross margin pressure from increasing royalties, with good supply customer service levels maintained.

Q: Richard Parkes on Huntington's program A: Vas Narasimhan discussed the mHTT lowering goal, positive interim results from PTC's study showing relevant mHTT lowering and clinical efficacy, and a good safety profile, expressing hope for positive Phase 2b study results.

Q: Emily Field on Pluvicto and Medicare Part D A: Vas Narasimhan noted Pluvicto was in line with expectations, with DTC efforts expected to have an impact in the coming months, and focus on PSMAfore launch.

Q: Matthew Weston on Medicare Part D impact on oncology portfolio A: Vas Narasimhan mentioned a modest headwind from Part D reforms factored into guidance, with two brands (Cosentyx, Kisqali) seeing the biggest impact, but confidence in managing it.

Q: Richard Vosser on Kisqali NBRx share A: Vas Narasimhan highlighted Kisqali's growth potential, with early breast cancer approval and NCCN guidelines supporting increased share, aiming to move from 52% to 75%+ over time.

Q: Graham Parry on Entresto dynamics A: Harry Kirsch discussed continued growth of Entresto until mid-2025, factoring in Medicare Part D dynamics and pursuing exclusivity options in Europe and Japan.

Q: Etzer Darout on Horizon Phase 3 A: Vas Narasimhan explained event-driven study modeling, noting cardiovascular outcome studies trending to lower event rates, with confidence in the drug's mechanism but awaiting final readout.

Q: James Quigley on guidance breakdown A: Harry Kirsch outlined volume growth, generic impacts, and pricing factors, with half 1 showing stronger growth than half 2 due to potential generic entries.

Q: Seamus Fernandez on ianalumab A: Vas Narasimhan discussed ianalumab's opportunities in Sjogren's, systemic lupus, lupus nephritis, and ITP, with multiple Phase 3 studies ongoing and potential broad labeling if positive.

Q: Naresh Chouhan on OAV101 A: Vas Narasimhan compared OAV101 to Zolgensma, expressing hope for fast ramp-up and large market opportunity, leveraging its one-time administration and gold standard Hammersmith score.

Q: Eric Le Berrigaud on midterm guidance A: Vas Narasimhan stated midterm guidance remains unchanged, with focus on delivering 2025 per plan and closing the gap between consensus and Novartis' view, with potential to reconsider midterm outlook if performance exceeds expectations.

Q: Richard Parkes on Cosentyx competition A: Vas Narasimhan discussed Cosentyx's competitive position, maintaining good formulary position and strong performance in Asian markets, with potential for growth in new indications like GCA and PMR.

Q: Florent Cespedes on 2026 pipeline readouts A: Vas Narasimhan highlighted key 2026 readouts including ianalumab in Sjogren's and ITP, Pluvicto in hormone-sensitive prostate cancer, and remibrutinib in food allergy, among others.