This photo taken on October 30, 2022 shows the logo of Swiss pharmaceutical company Novartis on a building in Basel.
Gabriel Monnet | AFP | fake images
Novartis “You can never do it” when it comes to major acquisitions in your sector, as you always need to look for the next “big asset,” CEO Vas Narasimhan told CNBC.
To offset the impact of generic competition, Novartis has been on a buying spree, acquiring more than 35 companies over the past year. The Swiss pharmaceutical company announced its biggest deal in a decade on Sunday, when it announced that it had agreed to buy the American biotechnology company Avidity Biosciences for about $12 billion.
The purchase will give the Basel, Switzerland-based pharmaceutical giant access to Avidity's broad portfolio of promising experimental drugs. Novartis said two of Avidity's three lead drugs expected to launch before 2030 have the potential to generate billions of dollars in sales.
“We are driven by science and technology, in this case this was a perfect fit for us… If you take a look at our free cash flow, it is close to $20 billion a year, so we have the right firepower to close deals like this and reinforce the growth profile of the company,” Narasimhan said on CNBC's “Europe Early Edition.”
Novartis posted a 7% increase in third-quarter constant currency sales of $13.9 billion as it continues to deal with competition for some of its most successful drugs. Net revenue increased 25% year-over-year to $3.9 billion. Analysts expected net income to be $4.4 billion, according to a consensus estimate compiled by LSEG.
Novartis shares fell 3.4% at the start of Tuesday's trading session. The stock is up about 17% since the beginning of the year, outpacing an 8% rise in the Swiss market index.
The company said its performance in the quarter was driven by growth in drug sales, including cancer treatments Kisqali, Pluvicto and Scemblix, as well as its multiple sclerosis drug Kesimpta, which saw double-digit revenue growth.
Novartis has raised its guidance for the past 10 quarters, including twice this year. UBS analysts expected the pharmaceutical company to raise its forecasts again this quarter. However, the drugmaker maintained its guidance for sales to grow by a “high single-digit” percentage and for adjusted operating income to grow by a “low-single-digit” percentage.
Its key drugs, Entresto, Promacta and Tasigna, face a loss of exclusivity in the United States, resulting in a negative impact of 7 percentage points. Meanwhile, adjustments to income deductions, primarily in the U.S., led to a negative impact of 2 percentage points due to pricing, the company said in an earnings report on Tuesday.
Drug prices in the US
Investors are closely monitoring global updates on tariffs and US President Donald Trump's efforts to reduce drug prices for US consumers.
Pharmaceutical giants Pfizer and AstraZeneca They have recently signed “most favored nation” (MFN) agreements with the US administration. The policy aims to reduce drug costs by tying the prices of some drugs in the United States to significantly lower prices abroad. In the case of the deals with Pfizer and AstraZeneca, it will reduce the cost of drugs for American consumers while giving the companies a three-year tariff exemption.
“Following the PFE and AZN MFN deals, we expect further announcements in the EU and US pharma sector in the coming weeks. The general investor expectation is to see a similar deal for Novartis. We look forward to seeing Novartis' views on the expected impact of any deal on earnings in 2026+,” UBS analysts said.
In September, Novartis promised to close the price gap between drugs in the United States and other industrialized nations.
Novartis stock so far this year.
When asked about Pfizer and AstraZeneca's MFN deals, Narasimhan said the company has been in talks with the White House since the beginning of the year.
“Of course, we are looking to find a good solution to the challenges that have been raised. I think it is also important that we are also trying to address some of the larger structural problems here… outside of the United States, innovation is not adequately rewarded,” the CEO said.
He added that if a deal was reached with the United States and prices fell in the United States, it would likely lead to “fewer launches in public markets, in target countries outside the United States.”
“I think prices in the US will adjust, but they will adjust modestly. I think really what we're going to have is a situation where, unless foreign countries (particularly as the administration is focused on the G7 plus Switzerland and Denmark) don't raise their prices to reward innovation, and on par with the US, companies will not go public in those countries,” Narasimhan told CNBC.
In September, Novartis also said it would not be affected by a 100% tariff announced by the White House on brand-name pharmaceuticals due to its $23 billion investment in US-based infrastructure.
