Pluvicto And Leqvio Expansion Will Sustain Performance Amid Patent Challenges

Key Takeaways

• Novartis shows strong growth in key brands and anticipates continued pipeline success, potentially boosting future sales and earnings.
  
• Expanding innovative therapies and operational efficiencies are expected to offset patent expirations and support net margin expansion.
  
• Loss of exclusivity and generic entries threaten Novartis's sales, with competitive pressures and regulatory changes potentially affecting revenue and margins.

Catalysts

Engages in the research, development, manufacture, distribution, marketing, and sale of pharmaceutical medicines in Switzerland and internationally.

• Novartis demonstrates strong growth in key brands such as Kisqali and Cosentyx, driven by significant market share gains and new launches, which are expected to enhance revenue growth and contribute to sustained long-term sales performance.
  
• The company anticipates continued pipeline success with pivotal advancements in medicines like Ianalumab and Remibrutinib, poised to address large unmet medical needs, thereby potentially boosting future sales and earnings.
  
• Novartis is focused on expanding the reach and adoption of new innovative therapies, such as Pluvicto and Leqvio, in additional indications and geographic regions, which could increase revenue streams and offset upcoming patent expirations.
  
• Efficiencies in SG&A and continued operational productivity improvements are expected to mitigate margin pressures from generic competition, supporting overall net margin expansion by optimizing resource allocation and cost management.
  
• The company's commitment to returning capital to shareholders through dividends and share buybacks further supports EPS growth, driving shareholder value and potentially enhancing stock valuation.

Novartis Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Novartis's revenue will grow by 2.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 23.1% today to 26.9% in 3 years time.
• Analysts expect earnings to reach $15.0 billion (and earnings per share of $7.49) by about April 2028, up from $11.9 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $16.5 billion in earnings, and the most bearish expecting $12.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.2x on those 2028 earnings, down from 17.5x today. This future PE is lower than the current PE for the US Pharmaceuticals industry at 24.5x.
• Analysts expect the number of shares outstanding to decline by 3.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 3.82%, as per the Simply Wall St company report.

Novartis Future Earnings Per Share Growth

Risks

• The potential loss of exclusivity (LOE) of key drug Entresto in the U.S. by mid-2025 could significantly impact sales and reduce revenue, considering it accounts for about 50% of global sales.
  
• The threats from generic entries for Tasigna, Promacta, and Entresto in the U.S. during mid-2025 could contribute to a softer financial performance in the second half of the year, putting pressure on both sales and net margins.
  
• The highly competitive market landscape for key products such as Cosentyx, especially with new entrants like Bimzelx which could capture market share, might affect revenue growth and net margins.
  
• Changes in Medicare Part D reform could create a modest headwind for oral oncology products, potentially affecting pricing and subsequently revenue.
  
• Uncertain outcomes of ongoing litigation and patent protection efforts for Entresto and other drugs might increase R&D expenses and legal costs, which could impact earnings.

Valuation

• The analysts have a consensus price target of CHF97.351 for Novartis based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CHF114.67, and the most bearish reporting a price target of just CHF76.54.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $55.6 billion, earnings will come to $15.0 billion, and it would be trading on a PE ratio of 15.2x, assuming you use a discount rate of 3.8%.
• Given the current share price of CHF90.9, the analyst price target of CHF97.35 is 6.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.