20-F: Novartis Reports Strong 2025 Growth, Strategic Acquisitions

Novartis AG delivered robust financial performance in 2025, driven by strong sales of key innovative medicines and strategic acquisitions, despite facing generic competition for several established products.

Summary

• Net sales from continuing operations reached USD 54.5 billion, an 8% increase in both USD reported terms and constant currencies (cc) compared to 2024.
• Operating income from continuing operations grew by 21% in USD reported terms and 25% in constant currencies to USD 17.6 billion.
• Net income was USD 14.0 billion, up 17% in USD reported terms and 19% in constant currencies.
• Basic earnings per share (EPS) increased by 22% in USD reported terms and 24% in constant currencies to USD 7.21.
• Key growth drivers included Kisqali (USD 4.8 billion, +58% cc), Kesimpta (USD 4.4 billion, +36% cc), Pluvicto (USD 2.0 billion, +42% cc), Scemblix (USD 1.3 billion, +85% cc), and Cosentyx (USD 6.7 billion, +8% cc).
• Generic competition negatively impacted sales of Entresto, Promacta/Revolade, Tasigna, and Lucentis.
• The company completed several strategic acquisitions in 2025, including Anthos Therapeutics, Regulus Therapeutics, and Tourmaline Bio, and announced the proposed acquisition of Avidity Biosciences.
• Research and development expenses increased by 12% in USD reported terms and 9% in constant currencies to USD 11.2 billion, driven by investments in recently acquired assets.
• Free cash flow amounted to USD 17.6 billion, an 8% increase from the prior year.
• The tax rate for 2025 was 14.6%, up from 12.5% in 2024, primarily due to changes in uncertain tax positions and deferred tax balance remeasurements.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a strong performance, driven by robust sales growth, strategic acquisitions, and significant R&D pipeline advancements, despite facing generic competition and macroeconomic headwinds. The company's proactive approach to strategic priorities and operational excellence is positive.

Positives

• Net sales from continuing operations increased by 8% in constant currencies, demonstrating strong underlying business growth.
• Operating income from continuing operations surged by 25% in constant currencies, reflecting higher net sales and lower impairments.
• Basic earnings per share (EPS) rose by 24% in constant currencies, benefiting from higher operating income and a lower weighted average number of shares outstanding.
• Key growth brands like Kisqali (+57% cc), Scemblix (+85% cc), Kesimpta (+36% cc), and Pluvicto (+42% cc) showed exceptional performance.
• Achieved blockbuster status for Leqvio with sales of USD 1.2 billion, growing 57% in constant currencies.
• Significant R&D pipeline progress with 18 key approvals and 13 regulatory filings secured, including Rhapsido in the US and China, Itvisma in the US, and Pluvicto pre-taxane in the US, Japan, and China.
• Successfully transitioned 17 compounds into late-stage clinical development, exceeding the target of 6.
• Completed 17 complementary Business Development & Licensing (BD&L) and Mergers & Acquisitions (M&A) deals, including the acquisitions of Anthos Therapeutics, Regulus Therapeutics, and Tourmaline Bio.
• Achieved a core operating income margin of 40.1%, reaching the 2027 external guidance two years ahead of schedule.
• Demonstrated strong ESG performance, including Double A List status for CDP Climate Change and Water Security for the fourth consecutive year, and an upgrade by MSCI to AAA.
• Increased investment in R&D for malaria and neglected tropical diseases, cumulatively investing USD 500 million from 2021-2025, double the original target.
• Launched Coartem Baby in Ghana, the first malaria treatment designed for newborns and infants, and reported positive Phase 3 readout for KALUMA, a next-generation malaria treatment.
• Achieved significant reductions in environmental impact: Scope 1 and 2 GHG emissions reduced by 45% and Scope 3 by 17% (vs. 2022 baseline), and water consumption and waste decreased by 59% (vs. 2016 baseline) and 18% (vs. 2022 baseline), respectively.

Negatives

• Generic competition led to a substantial decline in Entresto sales in the US in the third quarter of 2025 and negatively impacted Promacta/Revolade (-27% cc), Tasigna (-34% cc), and Lucentis (-40% cc) sales globally.
• Piqray/Vijoice sales declined by 15% due to increased competition across all markets.
• An impairment charge of USD 0.9 billion on goodwill attributable to the MorphoSys business acquisition was recognized in 2024.
• Interest expense increased by 14% to USD 1.1 billion in 2025.
• The effective tax rate from continuing operations increased to 14.6% in 2025 from 12.5% in 2024.

Risks

• Continuous significant pressures on product pricing and reimbursement rates from governments, insurers, and other payers, including government-imposed price reductions, mandatory pricing systems, and reference pricing systems.
• Impact of the US Inflation Reduction Act (IRA), which mandates drug price negotiation for Medicare Part B and Part D drugs, with Entresto selected for 2026 and Cosentyx, Kisqali, and Xolair selected for 2028.
• Challenges from the evolving 340B Drug Pricing Program landscape, including state-level legislation requiring sales to all contract pharmacies and the injunction of the Rebate Model Pilot Program.
• Intense competition from new or existing patented products, as well as generic and biosimilar versions, which can significantly reduce net sales and operating income.
• Failure to keep pace with technological changes in the industry, such as Artificial Intelligence (AI), potentially leading to lower revenues and margins.
• High rate of failure inherent in pharmaceutical research and development, with significant investments potentially lost if product candidates do not receive approval or meet commercial viability.
• Difficulties in recruiting a sufficient number of patients for clinical trials in the US due to competition and increasing costs.
• Increased post-approval regulatory burden, including requirements for confirmatory studies for accelerated approvals, leading to higher maintenance costs and risks of recalls or product withdrawals.
• Expiry, assertion, or loss of intellectual property protection (patents, regulatory exclusivities) can lead to significant reductions in net sales and operating income.
• Challenges from third parties claiming infringement, misappropriation, or other violations of their intellectual property rights, leading to costly litigation, damages, or injunctive relief.
• Failure to identify, execute, or realize expected benefits from external business opportunities, including acquisitions, divestments, and strategic alliances, due to competitive environment, integration difficulties, or unforeseen liabilities.
• Inability to meet rapidly evolving social impact and sustainability expectations, potentially harming reputation, recruitment, operations, access to capital, and financial results.
• Risks associated with utilizing AI, including flawed algorithms, bias, ethical issues, and rapidly evolving global regulation, which could lead to competitive harm, legal liability, or reputational damage.
• Vulnerability to cybersecurity attacks, data loss, and catastrophic loss of IT systems, including those outsourced to third-party providers, potentially disrupting business operations and leading to enforcement actions or liability.
• Failure to successfully implement company-wide IT programs to replace and consolidate outdated systems, potentially causing disruptions to operational stability and internal controls.
• Inability to identify, attract, develop, and retain qualified talent for critical roles, particularly in specialized areas like biology, immunology, oncology, and advanced therapy platforms.
• Challenges posed by evolving legal and regulatory requirements across jurisdictions, leading to substantial compliance costs, litigation, government investigations, and potential penalties.
• Failure to maintain adequate governance and risk oversight over external partner relationships, and non-compliance by external partners with contractual, regulatory, or ethical obligations.
• Inability to maintain continuity of product supply and ensure proper controls in product development and manufacturing, due to complex processes, reliance on single suppliers, or macroeconomic/geopolitical events.
• Noncompliance with personal data protection laws and regulations, leading to significant liability, reputational harm, and restrictions on data use and transfer.
• Impact of falsified medicines on patient safety, and reputational and financial harm due to adverse events mistakenly attributed to genuine products or direct financial losses.
• Disruptions at government health agencies (FDA, EMA) due to turnover, budget cuts, or government shutdowns, potentially delaying product development and approvals.
• Impact of geopolitical and social tensions, including changes in trade policies (e.g., proposed tariffs on pharmaceuticals), which could disrupt supply chains and increase costs.
• Deteriorating macroeconomic and financial conditions, potentially affecting consumer spending on prescription drugs, and the ability of payers, distributors, and suppliers to meet obligations.
• Exposure to a broad range of climate risks (transition and physical risks), leading to increased operating costs, supply chain disruptions, and reputational damage.
• Changes in tax laws or their application, including international tax disputes and the implementation of the OECD global minimum tax framework (Pillar Two), potentially increasing the effective tax rate.
• Significant indebtedness (USD 27.9 billion non-current, USD 5.6 billion current) requiring a portion of cash flow for debt service, potentially limiting funding for capital expenditures or strategic transactions.
• Risk of significant impairment charges on goodwill and intangible assets other than goodwill, particularly those obtained through acquisitions, if fair value falls below carrying value.
• Negative effect on financial results due to foreign currency exchange rate fluctuations, especially between the US dollar and other major currencies, and the Swiss franc.

Future Outlook

Novartis expects continued growth driven by its existing portfolio of innovative medicines and key upcoming launches, with a long-term strategy focused on delivering high-value medicines. The company aims to sustain attractive returns for shareholders while creating value for patients and healthcare systems. Significant investments in AI and other advanced technologies are planned to enhance and accelerate R&D, and the company is expanding its US-based manufacturing and R&D footprint. The proposed acquisition of Avidity Biosciences is expected to close in the first half of 2026 and will be funded through available cash and third-party debt.

Management Comments

• Vasant Narasimhan, CEO, certified that the annual report does not contain any untrue statement of a material fact or omit to state a material fact, and that financial statements fairly present the company's condition, results, and cash flows.
• Harry Kirsch, CFO, certified the accuracy and fair presentation of the financial information in the report.
• Simon Moroney, Chair of the Compensation Committee, stated that the compensation of Executive Committee members is built on a strong pay-for-performance philosophy, with payouts directly tied to the achievement of shortand long-term financial and strategic objectives.
• The Board of Directors concluded that the 2025 Annual Incentive and LTPP results fairly reflect the company's performance and shareholder experience, noting the strong year-on-year TSR between 2024 and 2025.

Industry Context

StockSavvy.ai notes that Novartis's strong 2025 performance, particularly in innovative medicines and advanced therapy platforms (radioligand, xRNA, cell and gene therapies), aligns with the broader pharmaceutical industry's shift towards high-value, specialized treatments. The company's increased investment in AI for R&D reflects an industry-wide race to leverage technology for faster drug discovery and improved efficiency. However, Novartis, like its peers, faces intensifying pressures from healthcare cost-containment measures, evolving regulatory landscapes (e.g., US IRA, EU pharmaceutical legislation), and geopolitical tensions impacting global supply chains and pricing. The focus on patient access initiatives and direct-to-patient platforms is a response to rising demand for quality healthcare and increasing patient influence on treatment decisions, a trend observed across the sector.

Comparison to Industry Standards

• Novartis's 2023-2025 Long-Term Performance Plan (LTPP) cycle achieved a Total Shareholder Return (TSR) of 84% (in USD), ranking No. 2 out of 15 global healthcare peer companies (including Novartis).
• The global healthcare peer group used for benchmarking includes AbbVie, Amgen, AstraZeneca, Bristol-Myers Squibb, Eli Lilly, Gilead Sciences, GlaxoSmithKline, Johnson & Johnson, Merck & Co., Novo Nordisk, Pfizer, Roche, Sanofi, and Takeda (effective 2026, replacing Biogen).

Management Changes

Corporate Governance

Legal Proceedings

• Southern District of New York (S.D.N.Y.) Gilenya marketing practices investigation: NPC's motion to dismiss was granted in 2022, but the appeals court affirmed in part and remanded in part in December 2024, sending the case back to the district court for further proceedings. Claims are being vigorously contested.
• Lucentis/Avastin matters in France: The French Competition Authority (FCA) imposed a fine of approximately USD 452 million in 2020 for alleged anti-competitive practices. Novartis paid the fine and appealed. In February 2023, the Paris Court of Appeal overturned the FCA's decision, leading to reimbursement of the fine. In June 2025, France's Supreme Court overturned the Court of Appeal's decision and remanded the case, resulting in Novartis recording a provision of USD 443 million and the FCA re-imposing its original fine, which Novartis has paid. Novartis is vigorously contesting similar investigations in Greece and Trkiye.
• Greece investigation: Greek authorities are investigating legacy allegations of inappropriate economic benefits. In 2022, the Greek State served a civil lawsuit seeking approximately USD 225 million for moral damages. In May 2025, the court rejected these claims, which the Greek State appealed in October 2025. In June 2025, the National Social Security Fund of Greece filed a new civil lawsuit seeking approximately EUR 229 million for moral damages. Claims will be vigorously contested.
• 340B Drug Pricing Program litigation: NPC has initiated litigation challenging state statutes imposing further obligations on manufacturers regarding contract pharmacies and the federal government's refusal to allow a rebate payment model. In 2025, HRSA dismissed petitions alleging overcharges against NPC. In December 2025, a US court enjoined implementation of the Rebate Model Pilot Program.
• Inflation Reduction Act (IRA) litigation: NPC filed a complaint in the U.S. District Court for the District of New Jersey challenging the constitutionality of drug price-setting provisions. In October 2024, the court granted the government's motion for summary judgment, which the Third Circuit affirmed in September 2025. In January 2026, NPC petitioned the U.S. Supreme Court to review the Third Circuit's decision.
• Tasigna product liability litigation: NPC is a defendant in over 400 US product liability actions alleging cardiovascular effects and inadequate warnings. Most cases have been resolved, and NPC will vigorously contest the remaining claims.
• Shareholder derivative lawsuit: A purported shareholder derivative lawsuit filed in New York State Court in 2021 against NPC, Sandoz Inc., Novartis Capital Corporation, and certain present/former directors/officers was dismissed by the court in 2022. Plaintiffs dismissed their appeal in July 2025, concluding this matter.

Related Party Transactions

• A company subsidiary provided an uncommitted overnight credit facility of up to USD 500 million to the Novartis Pension Fund, Switzerland, which was not utilized during 2025, 2024, and 2023.
• Total IFRS Accounting Standards compensation expense for Executive Committee members and Non-Executive Directors amounted to USD 109.4 million in 2025 (USD 93.6 million in 2024; USD 92.2 million in 2023).

Stakeholder Impact

• Shareholders: Benefited from strong financial performance, increased dividends (proposed CHF 3.70 per share for 2025), and share buyback programs (USD 9.1 billion in 2025). The 2023-2025 LTPP cycle delivered an 84% TSR, ranking second among peers.
• Patients: Gained access to new innovative medicines and indications (e.g., Rhapsido, Itvisma, Pluvicto pre-taxane, Fabhalta C3G, Vanrafia IgAN, Coartem Baby). Patient support programs are being rolled out for specialty drugs.
• Employees: Compensation philosophy emphasizes pay-for-performance, with variable compensation tied to strategic objectives. Global budget of over USD 348 million for salary adjustments in 2026. Increased investment in developing AI capabilities and competencies. However, the challenging talent market and organizational changes pose retention risks.
• Governments and Payers: Faced increased pressure on pricing and reimbursement due to legislative changes (e.g., US IRA, EU pharmaceutical legislation) and cost-containment measures. Novartis entered into a voluntary agreement with the US administration to lower medicine costs and committed to comparable prices across high-income countries for future medicines.
• Collaboration Partners: Engaged in strategic alliances and acquisitions to strengthen the portfolio, but reliance on external partners poses risks related to compliance, supply disruptions, and data privacy.
• Suppliers: Required to adhere to high quality standards and applicable regulations, with efforts to maintain multiple supply sources where possible, but vulnerable to shortages for single-source materials.
• Creditors: Indebtedness of USD 33.5 billion (total financial debts) requires dedication of cash flow to service interest and principal payments, with potential for increased costs if interest rates rise.

Next Steps

• Close the proposed acquisition of Avidity Biosciences, Inc., expected in the first half of 2026.
• Close a long-term research and development agreement, expected in the first quarter of 2026.
• Hold the Annual General Meeting (AGM) on March 6, 2026, to approve the 2025 consolidated financial statements and the proposed dividend of CHF 3.70 per share.
• Continue implementation of the Lean Digital Core transformation program to future-proof processes and technologies.
• Continue investments to expand US-based manufacturing and R&D footprint.
• Apply to participate in the GENEROUS (GENErating cost Reductions fOr U.S. Medicaid) Model.
• Build direct-to-patient platforms for certain other medicines (Mayzent, Rydapt, Tabrecta) as part of the voluntary agreement with the US administration.
• Support efforts to address the global imbalance in investment in pharmaceuticals.
• The Board will annually review and verify the effectiveness of the Enterprise Risk Management (ERM) program and focus on strategic risks, following the dissolution of the Risk Committee from the 2026 AGM.

Key Dates

Recommendation

Novartis's 2025 results demonstrate strong operational performance, with significant growth in net sales, operating income, and EPS, driven by a robust portfolio of innovative medicines. The company's strategic focus on high-growth therapeutic areas and advanced technology platforms, coupled with successful M&A activity, positions it well for future growth. While generic competition and regulatory pressures are present, the company's ability to achieve its core margin target two years ahead of schedule and its strong TSR performance relative to peers indicate effective management and value creation. The commitment to R&D and ESG initiatives further strengthens its long-term prospects, making it an attractive investment.

Keywords

Pharmaceuticals, Biotechnology, SEC Filing, Novartis, Financial Results, Drug Development, Oncology, Immunology, Neuroscience, Cardiovascular, Renal, Metabolic, Acquisitions, R&D, Intellectual Property, Generic Competition, Regulatory Approval, AI, ESG, Share Buyback, Dividend, Risk Management, Corporate Governance, SEC 20-F