Novartis AG

In Q2 2026, net sales grew 1% to $14.4 billion and core operating income was flat at $5.9 billion. Core operating margin was 41.2%, down 70 basis points versus the prior year, mainly due to incremental Avidity cost and a lower gross margin partly offset by productivity gains. Free cash flow was $5.6 billion in Q2, and H1 free cash flow was $8.9 billion. For the first half, net sales declined 2%, core operating income declined 7%, and core operating margin declined 2.3 percentage points to 39.4%. Full-year 2026 guidance was reaffirmed for net sales growth of low single digits, core operating income decline of low single digits, core net financial results of around $1.7 billion, and core tax rate of around 16.5%. Management also said that if exchange rates stay at mid-July levels, full-year net sales and core operating income would each get a positive 1 percentage point FX impact. For H2, Novartis expects net sales to grow mid-single digits and H2 core operating income to grow mid to high single digits.

Vas Narasimhan said Novartis delivered strong performance across priority brands and launches, which helped the company return to growth in Q2. He emphasized that the growth drivers are performing strongly and that this gives the business momentum into the second half, after the Entresto patent expiry. He also framed the pipeline as an important source of future upside, pointing to planned readouts and regulatory milestones that could support a better mid- to long-term growth outlook.

Mukul Mehta walked through the financials, saying Q2 net sales grew 1% to $14.4 billion and core operating income was flat at $5.9 billion. He highlighted a 41.2% core operating margin, down 70 basis points year over year, with the decline mainly due to incremental Avidity cost; he also noted Q2 free cash flow of $5.6 billion and H1 free cash flow of $8.9 billion. On capital allocation, he said Novartis paid $9.1 billion in dividends in H1, repurchased $2.1 billion of shares, and still has $5.6 billion remaining under the current up-to-$10 billion buyback program, which it targets to complete by end-2027. He also said the Q2 beat included about a 1 percentage point top-line benefit from inventory-related phasing and about a 5 percentage point benefit to core operating income from combined top-line and R&D phasing, which will reverse in H2.

Analysts focused on the timing and regulatory path for several pipeline assets, especially votoplam in Huntington’s, pelacarsen, remibrutinib in MS, and del-brax in FSHD. Vas Narasimhan said the base case for Huntington’s remains a phase III study as designed, with no specific FDA timing, though the company expects more clarity in the second half. On pelacarsen, he said the trial is powered around 20% in certain subgroups, but that a mid-teens benefit would still be clinically meaningful; on remibrutinib in MS, he said Novartis cannot yet comment on disability progression and is watching the blinded data. On del-brax, he said the biomarker results support target engagement, but regulatory discussions are still needed before deciding whether a filing based on that data is possible.