# Novartis AG (NVS) — Narrative, FY26Q2 (quarter and half year ended June 30, 2026) Novartis reports in US dollars under IFRS Accounting Standards, so every amount below is as the company reported it; no currency conversion was needed. Growth rates are year over year in US dollars unless marked "cc" (constant currencies, the company's own non-IFRS measure). "Core" results are Novartis's non-IFRS measures that exclude amortization and impairment of intangible assets, acquisition- and divestment-related items, restructuring, legal-related items and certain other items. Sources: the Business, Risk factors and annual MD&A sections come from the Annual Report on Form 20-F for the fiscal year ended December 31, 2025 (accession 0001114448-26-000004, filed February 4, 2026). The Current quarter and Subsequent events sections come from the second-quarter and half-year 2026 results on Form 6-K (accession 0001114448-26-000012, filed July 21, 2026: Exhibit 99.1 financial results release and Exhibit 99.2 condensed interim financial report), plus three later Form 6-K press releases identified where cited. --- ## Business *From the FY2025 Form 20-F, accession 0001114448-26-000004 (Item 4 and Item 5).* Novartis is a "pure-play" innovative medicines company: it discovers, develops, manufactures and sells patented prescription drugs. It sells mainly to drug wholesalers, retailers, private health systems, government agencies, managed care providers, pharmacy benefit managers and government-supported healthcare systems in approximately 120 countries. In 2025 it generated net sales of $54.5 billion and net income of $14.0 billion, with 75,267 full-time-equivalent employees. Revenue comes almost entirely from net sales of branded medicines. Smaller "other revenues" ($2.1 billion in 2025) consist of items such as profit-sharing income, royalties and milestones. Novartis has a single global operating segment and is headquartered in Basel, Switzerland. **Where the money comes from.** Net sales are concentrated in the US and Europe: - United States: $23.3 billion (43% of 2025 net sales) - Europe: $16.7 billion (31%) - Asia, Africa and Australasia: $10.8 billion (20%) - Canada and Latin America: $3.7 billion (6%) Emerging growth markets accounted for $14.0 billion (26%), including $4.2 billion from China. The company names four priority markets: the US, China, Germany and Japan. Customer concentration is high. A significant portion of sales goes to a small number of wholesalers, retail chains, governments and other purchasing organizations; the three largest customers accounted for approximately 18%, 13% and 7% of 2025 net sales. **Therapeutic areas.** The portfolio is organized around four core therapeutic areas plus a declining established-brands book. 2025 net sales: - **Oncology: $16.8 billion (+18%).** Kisqali (breast cancer, $4.8 billion), Tafinlar + Mekinist ($2.2 billion), Jakavi ($2.1 billion, ex-US only; Incyte holds US rights), Pluvicto (radioligand therapy for prostate cancer, $2.0 billion), Promacta/Revolade, Scemblix (CML, $1.3 billion), Tasigna, Lutathera and Fabhalta. - **Immunology: $10.3 billion (+11%).** Cosentyx (IL-17A inhibitor, $6.7 billion), Ilaris ($1.9 billion), Xolair ($1.7 billion; Novartis co-promotes with Genentech in the US and books only ex-US sales), and Rhapsido (oral BTK inhibitor for chronic spontaneous urticaria, approved in the US in 2025). - **Cardiovascular, renal and metabolic: $9.0 billion (+4%).** Entresto (heart failure, $7.7 billion; US generic entry in July 2025), Leqvio (twice-yearly siRNA cholesterol therapy, $1.2 billion, licensed from Alnylam) and Vanrafia (IgA nephropathy). - **Neuroscience: $6.0 billion (+26%).** Kesimpta (multiple sclerosis, $4.4 billion), the Zolgensma/Itvisma gene therapies for spinal muscular atrophy ($1.2 billion), and Aimovig (ex-US and ex-Japan). - **Established brands: $12.5 billion (-7%).** Older, largely off-patent products, including Sandostatin, Exforge, Diovan, Lucentis (ex-US) and Kymriah, plus contract manufacturing sales. **Technology platforms and R&D.** Novartis invests in two established platforms (chemistry and biotherapeutics) and three advanced ones: radioligand therapy, xRNA, and cell and gene therapy. R&D expense was $11.2 billion in 2025 (core: $10.3 billion). The company is organized into Biomedical Research (discovery and early clinical work), Development (confirmatory trials and regulatory filings), Operations (manufacturing, supply, IT and procurement), and two commercial units, US and International. It runs a field force of 17,491 full-time equivalents. **Business development.** The company supplements its pipeline with frequent bolt-on acquisitions and licensing. In 2025 it acquired Anthos Therapeutics (abelacimab, atrial fibrillation), Regulus Therapeutics (farabursen, polycystic kidney disease) and Tourmaline Bio (pacibekitug, atherosclerotic cardiovascular disease). It also agreed to acquire Avidity Biosciences, which closed in 2026 (see Current quarter). **Exclusivity runway.** The 20-F gives these estimated US/EU expiry years for basic patent or regulatory exclusivity on key products: - Entresto: US combination patent expired; EU regulatory data protection ends in 2026, with an EU combination patent and SPC running to 2028 - Cosentyx: 2029 (US) / 2030 (EU) - Kisqali: 2031 / 2032 - Kesimpta: 2031 in the US; EU composition-of-matter patent expired - Pluvicto: 2034 / 2037 - Leqvio: 2034 / 2035 - Scemblix: 2035 / 2037 - Fabhalta: 2034 / 2039 Promacta/Revolade and Tasigna have lost composition-of-matter protection in both regions. --- ## Risk factors *From the FY2025 Form 20-F, accession 0001114448-26-000004 (Item 3.D). Condensed to the risks with company-specific substance.* - **US pricing pressure and the IRA.** Novartis accepted a Medicare "maximum fair price" for Entresto effective 2026 under the Inflation Reduction Act. CMS has selected Cosentyx, Kisqali and Xolair for Medicare price negotiation for 2028, and more products may be picked later. In December 2025 Novartis reached a voluntary agreement with the US administration. It commits the company to launch future medicines at comparable prices across high-income countries, to apply to the GENEROUS Medicaid model, and to build direct-to-patient platforms. The company warns that most-favored-nation pricing efforts and similar measures could depress prices and access. - **Loss of exclusivity.** Generic Entresto entered the US in July 2025, followed by a substantial US sales decline. Entresto's EU regulatory data protection expires in November 2026, and the company expects revenues there to decline substantially afterwards unless later-expiring patents are successfully asserted. Other key products face exclusivity expiries in the coming years, and generics may launch "at risk" before litigation ends. - **Commercial execution and competition.** Growth depends on a small number of brands (Kisqali, Kesimpta, Cosentyx, Pluvicto, Scemblix, Leqvio) and on new launches beating competitors. Slower uptake, safety signals, supply problems or competing products could hurt revenue. - **R&D productivity.** Pipeline candidates fail at high rates, including after large investments. Accelerated approvals depend on confirmatory studies. Recruiting patients for US trials is getting harder, and post-approval regulatory burdens are rising. - **Acquisitions and integration.** Novartis relies heavily on external deals (Anthos, Regulus and Tourmaline in 2025; Avidity in 2026). Acquired assets may fail, integration may fall short, and antitrust scrutiny may delay or block deals. - **Goodwill and intangible impairments.** The balance sheet carries large acquired intangibles. Novartis recorded $557 million of intangible-asset impairments in 2025 and warns that further significant charges are possible. - **Indebtedness.** At December 31, 2025, Novartis had $27.9 billion of non-current and $5.6 billion of current financial debt. Debt service limits flexibility and is sensitive to interest rates. Debt rose further in 2026 to fund the Avidity acquisition (see Current quarter). - **Tariffs and geopolitics.** The US administration proposed tariffs on imported pharmaceuticals in 2025. Novartis says it expects three years of relief from such tariffs in recognition of its planned US R&D and manufacturing expansion. Without that relief, tariffs or export controls could disrupt supply and materially affect results. - **Supply chain and product quality.** Manufacturing is complex, especially for radioligand, cell and gene, and xRNA therapies. Some inputs, such as radioisotopes and cell lines, come from a single source. Compliance failures could trigger shutdowns, recalls or warning letters. - **Cybersecurity and IT transformation.** The company depends on complex and partly outsourced IT systems, has experienced cyberattacks, and is replacing ageing systems in company-wide programs that could disrupt operations and internal controls. - **Legal and regulatory exposure.** Novartis faces investigations and litigation over pricing, marketing practices, bribery, product liability, antitrust and intellectual property, and has previously paid major settlements and entered corporate integrity agreements. - **Healthcare agency disruption.** Staff and budget cuts or government shutdowns at the FDA, EMA and other agencies could delay reviews and approvals. - **Tax.** The OECD 15% global minimum tax applies in Switzerland, which added the income inclusion rule in 2025. The US One Big Beautiful Bill Act changed the treatment of R&D expenses and raised the rate on foreign-derived income (FDDEI) to 14% from 2026. Transfer-pricing disputes could raise the effective tax rate. - **Currency.** The US dollar is the reporting currency, but a large share of costs is in other currencies. Swiss franc expenses are significantly higher than Swiss franc revenue, so exchange-rate moves can materially affect reported results. - **Customer concentration.** The three largest customers accounted for about 18%, 13% and 7% of 2025 net sales, and 16%, 12% and 6% of trade receivables at year-end, which concentrates credit risk. - **Artificial intelligence.** Novartis warns that failing to execute an effective enterprise AI strategy could cost it competitive advantage in discovery and trials. Using AI also brings legal, ethical and data-rights risks. --- ## Management's discussion — fiscal 2025 *From the FY2025 Form 20-F, accession 0001114448-26-000004 (Item 5.A and 5.B).* Fiscal 2025 was a year of strong growth driven by volume. The Entresto patent cliff began to bite in the second half. **Sales.** Net sales rose 8% (8% cc) to $54.5 billion. Volume contributed 15 percentage points of growth, generic competition subtracted 6 points and pricing 1 point, and currency had no impact. US sales grew 10% to $23.3 billion and rest-of-world sales grew 7% (6% cc) to $31.2 billion. The main growth drivers were Kisqali ($4.8 billion, +58%), Kesimpta ($4.4 billion, +37%), Pluvicto ($2.0 billion, +43%), Scemblix ($1.3 billion, +87%) and Cosentyx ($6.7 billion, +9%). Generic erosion of Promacta, Tasigna and Lucentis offset part of that growth. Entresto declined 1% to $7.7 billion as US generics entered in the third quarter of 2025. Leqvio reached blockbuster status at $1.2 billion (+59%), and Fabhalta nearly quadrupled to $0.5 billion. **Profitability.** Operating income rose 21% (+25% cc) to $17.6 billion, a 32.4% margin, up 3.5 points. The company attributes the increase to higher sales and lower impairments, partly offset by investment behind priority brands and launches. The prior year had included a goodwill impairment. R&D expense rose 12% to $11.2 billion as the company invested in recently acquired assets. Core operating income rose 12% (+14% cc) to $21.9 billion, a 40.1% core margin (up 1.4 points). Net income was $14.0 billion (+17%) and basic EPS $7.21 (+22%), which benefited from a lower share count. Core EPS was $8.98 (+15%). The reported tax rate was 14.6%, against 12.5% in 2024. **Cash and capital.** Operating cash flow was $19.1 billion (+9%) and free cash flow $17.6 billion (+8%). Novartis returned cash on a large scale. It repurchased 77.6 million shares for $8.9 billion, completing its $15 billion buyback (announced July 2023) in July 2025 and starting a new program of up to $10 billion, and it paid a $7.8 billion dividend. Net debt rose to $21.9 billion from $16.1 billion, and debt/equity rose to 0.72:1 from 0.67:1. In November 2025 the company issued $6.0 billion of US dollar bonds. Year-end liquidity was $11.6 billion, backed by a $6.0 billion committed credit facility maturing in May 2029, which was undrawn. Ratings were Aa3 (Moody's) and AA- (S&P). --- ## Current quarter — Q2 and first half 2026 *From the Q2/H1 2026 results on Form 6-K, accession 0001114448-26-000012 (Exhibit 99.1 release; Exhibit 99.2 condensed interim financial report).* **Headline.** Sales returned to growth in the second quarter, but the Entresto and Promacta generic cliff and higher interest and tax costs pushed reported earnings down sharply. Net sales grew 3% (+1% cc) to $14.4 billion. Operating income fell 2% (-3% cc) to $4.75 billion, a 33.0% margin, down 1.6 points. Net income fell 19% to $3.26 billion and EPS fell 17% to $1.71. Core operating income was flat at $5.94 billion, with the core margin down 1.0 point to 41.2%. Core EPS was $2.41, against $2.42 a year earlier. For the first half, net sales were $27.5 billion (+1%, -2% cc), net income $6.41 billion (-16%) and core EPS $4.39 (-6%). **Sales drivers.** In the quarter, volume added 18 percentage points of growth, generic competition subtracted 14 points and pricing 3 points, and currency added 2 points. Regionally: - **US:** sales fell 5% to $6.0 billion (41% of the total, down from 44%). Strong growth from Kisqali, Kesimpta, Scemblix, Cosentyx and Pluvicto was more than offset by Entresto and Promacta generics. US Entresto net sales were negative $2 million in the quarter, which the company attributes mainly to a change in revenue deductions. Essentially all of Entresto's $1,181 million (-50%) came from outside the US. - **Europe:** sales rose 6% (+4% cc) to $4.4 billion. - **Emerging growth markets:** sales rose 10% (+6% cc) to $3.9 billion, including $1.2 billion from China. **Brand performance (Q2 2026).** Growth brands are absorbing the generic losses: - Cosentyx: $1,824 million (+12%), led by the US, including hidradenitis suppurativa and the IV formulation; China declined. - Kisqali: $1,695 million (+44%), on continued share gains in early breast cancer. - Kesimpta: $1,424 million (+32%). - Pluvicto: $651 million (+43%), on demand in the pre-taxane setting. - Scemblix: $562 million (+89%). - Leqvio: $480 million (+61%), helped by its January inclusion in China's national reimbursement list. - Fabhalta: $225 million (+88%). - Zolgensma Group: $365 million (+23%), driven by the Itvisma launch. - Rhapsido: $64 million in its early launch. - Generic and biosimilar erosion: Promacta/Revolade fell 64% to $179 million, Tasigna fell 57% to $142 million and Xolair fell 23% to $342 million on biosimilar pressure. By therapeutic area, oncology grew 35% to $4.5 billion, immunology 9% to $2.8 billion and neuroscience 29% to $1.9 billion. Cardiovascular, renal and metabolic fell 36% to $1.7 billion and established brands fell 12% to $3.5 billion. **Margins and costs.** Gross profit fell 2% to $11.2 billion. The company attributes the decline to a prior-year royalty settlement and unfavorable product mix: royalty income was $27 million, against $318 million that included a $0.3 billion settlement. SG&A fell 6% to $3.2 billion, which the company credits to productivity. R&D rose 4% to $2.8 billion on investment in recently acquired assets. Other expense fell on lower legal costs. Core adjustments rose to $1.2 billion, with higher restructuring and impairments. Intangible impairments were $199 million, against $92 million. **Below the operating line.** Interest expense jumped to $462 million from $289 million because of higher financial debt. The quarterly tax rate rose to 23.7% from 11.2%. The company cites the tax effect of an intercompany transaction and changes in uncertain tax positions; excluding those items the rate would have been 17.3%, against 15.5%. The core tax rate was 16.7%. Together these explain why net income fell 19% while operating income fell only 2%. **Cash flow.** Q2 operating cash flow was $5.9 billion (-12%) and free cash flow $5.6 billion (-12%), reflecting lower net income adjusted for non-cash items and unfavorable changes in other financial receipts. For the first half, operating cash flow was $9.6 billion (-7%) and free cash flow $8.9 billion (-9%). **Acquisitions in the first half.** Novartis made three acquisitions in the half, with related cash outflows totaling $14.4 billion: - **Avidity Biosciences** closed on February 27, 2026 at $72.00 per share in cash, about $12.0 billion on a fully diluted basis. Avidity is an RNA-therapeutics company focused on rare neuromuscular diseases (DM1, FSHD and DMD). The preliminary allocation assigned $11.3 billion to identifiable intangible assets, of which about $7.5 billion went to the DM1 in-process R&D asset, and $1.4 billion to goodwill. - **Pikavation Therapeutics** (from Synnovation Therapeutics) closed on May 28, 2026: $1.8 billion in cash plus up to $1.2 billion in milestones, for a pan-mutant selective PI3Kα inhibitor program (SNV4818). - **Excellergy** closed on June 24, 2026: $0.9 billion in cash plus up to $1.1 billion in milestones, for next-generation anti-IgE therapies. **Financing and balance sheet.** Avidity was first funded with an $11.0 billion SOFR-based bridge loan. Novartis repaid it on March 18, 2026 with proceeds of US dollar bonds issued in seven tranches with $11.0 billion of notional, maturing between 2029 and 2056 at coupons from SOFR+0.65% to 5.70%. In the second quarter it added euro bonds maturing in 2032, 2035 and 2041, which raised $2.0 billion. Bond issuance brought in $12.9 billion of cash in the half. At June 30, 2026, net debt was $39.4 billion, up from $21.9 billion at year-end, and debt/equity was 1.12:1, up from 0.72:1. Total financial debt was $47.1 billion, liquidity $7.7 billion and equity $41.9 billion, down $4.6 billion. Ratings remained Aa3 and AA-. Undiscounted R&D milestone commitments totaled $19.7 billion. **Shareholder returns.** Novartis paid its annual dividend of $9.1 billion in the first quarter. In the first half it repurchased 18.2 million shares for $2.8 billion. Of these, 13.8 million shares ($2.1 billion) were bought under the up-to-$10 billion program announced in July 2025, which has up to $5.6 billion left to execute. **Pipeline and regulatory (Q2).** Novartis says it has about 100 projects in clinical development. Second-quarter milestones: - **Approvals:** Rhapsido for chronic spontaneous urticaria in the EU and Japan; Itvisma in the EU for SMA patients two years and older; Cosentyx for juvenile ankylosing spondylitis in the US. - **Submissions:** a BLA for del-zota (from Avidity), seeking accelerated approval in Duchenne muscular dystrophy patients amenable to exon 44 skipping; traditional-approval submissions for Vanrafia in IgAN in the US and EU. Submissions for Cosentyx in polymyalgia rheumatica and ianalumab in Sjögren's disease were made in the first quarter. - **Kisqali:** six-year NATALEE follow-up showed clinically meaningful overall survival in early breast cancer. The FDA granted pediatric exclusivity, adding six months to all of its Orange Book-listed patents. - **Other data:** Rhapsido met its Phase III primary endpoint in chronic inducible urticaria, and del-brax met its Phase I/II biomarker endpoints in FSHD. Ianalumab's Phase III VAYHIA study in warm autoimmune hemolytic anemia did not meet its primary endpoint. **Legal developments (as of July 20, 2026).** - **Lutathera:** in June 2026 the US District Court for Delaware ruled against the validity of Novartis patents covering Lutathera, which run to 2039 with pediatric exclusivity. Novartis has appealed. No manufacturer has final US approval, but a launch before the appeal is decided would be at risk. - **IRA challenge:** the US Supreme Court declined in May 2026 to hear Novartis's constitutional challenge to the IRA drug-price negotiation program, ending that litigation. - **Gilenya:** a district court denied Novartis's motion to dismiss the S.D.N.Y. qui tam case over Gilenya marketing practices in March 2026, and the case moved to discovery. - **Greece:** the Court of Appeal upheld the annulment of the SDOE fine in June 2026. The Greek State's civil claim of about $225 million, rejected at first instance in May 2025, is under appeal, and a separate suit by the National Social Security Fund of Greece over the same facts is being contested. **Outlook.** Novartis reaffirmed its full-year 2026 guidance in constant currencies: net sales growing by a low single-digit percentage and core operating income declining by a low single-digit percentage. If mid-July exchange rates held, currency would add about 1 percentage point to both. Management said it remained on track for its mid-term outlook. --- ## Subsequent events *From Note 10 (Commitments) and Note 11 (Events subsequent to the June 30, 2026 balance sheet date) of the condensed interim financial report and the Q2 release, Form 6-K accession 0001114448-26-000012; later items from the Form 6-K press releases named below.* **Events disclosed in the interim report:** - **Agreement to acquire Myricx Bio (July 5, 2026).** Novartis signed a stock purchase agreement to acquire Myricx Bio, a privately held UK biotechnology company. Myricx is developing a new class of antibody-drug conjugates that use N-myristoyltransferase inhibitor (NMTi) payloads; its two lead assets target B7-H3 and HER2. Novartis will pay $1.1 billion at closing plus up to $0.4 billion in milestone payments. Closing is expected in the second half of 2026, subject to customary conditions including regulatory approval. This is the only event Note 11 identifies. - **Fabhalta traditional approval in IgAN (July 2026).** The FDA granted traditional approval of Fabhalta as the first complement inhibitor shown to significantly slow kidney-function decline in adults with primary IgA nephropathy at risk of progression. **Later pipeline readouts.** Three Phase III readouts in September 2026 bear on the story above. Remibrutinib, the molecule sold as Rhapsido for urticaria, met its primary endpoint in relapsing multiple sclerosis, a potential new indication (Form 6-K accession 0001171843-26-005824). Pelacarsen, the Ionis-licensed Lp(a) drug listed for a 2026 submission, failed its cardiovascular outcomes trial (accession 0001171843-26-005896). Del-desiran failed its HARBOR study in myotonic dystrophy type 1 (accession 0001171843-26-005908). Del-desiran is one of the three antibody-oligonucleotide conjugate programs acquired with Avidity, and about $7.5 billion of the Avidity purchase price was allocated to the DM1 in-process R&D asset. In that release Novartis also said the FDA had granted priority review to del-zota, and it maintained its guidance for a 5–6% five-year sales compound annual growth rate over 2025–2030.