Novartis is walking through the largest patent-expiry year in its history and still returning to growth, which is the entire investment argument in one sentence. The United States generic entry on Entresto, the former heart-failure franchise that once carried a mid-teens share of group sales, halved that brand in the second quarter. Volume from Kisqali, Kesimpta, Scemblix, Pluvicto, and Leqvio more than replaced the lost Entresto revenue, lifting constant-currency sales by 1%. Management reaffirmed the full-year plan of low single-digit sales growth and a low single-digit decline in core operating income, the company-defined profit measure that strips amortization, impairments, and acquisition items. The market is no longer debating whether the cliff exists. The debate is whether the replacement engine is durable enough to fund the mid-decade growth rate management still cites.
The second-quarter print was cleaner on volume than on quality of earnings. Volume added 18 percentage points to second-quarter sales. Generic competition subtracted 14 points in the same period. Pricing was a modest headwind and currency a modest help, so the reported constant-currency growth rate was barely positive. Core operating income, the non-IFRS line the equity actually trades on, was flat at USD 5.9 billion. Management later said one-time phasing added about 5 points to that profit line and reverses in the second half, which is the honest qualification the beat requires. IFRS net income fell much harder, pressured by a higher tax rate and interest expense after the Avidity Biosciences cash deal closed.
What changed the capital structure in the first half is the Avidity close. Novartis paid USD 12 billion in cash in February for a muscle-directed RNA platform and three late-stage neuromuscular programs, then layered smaller oncology and immunology asset deals on top. Net debt jumped to USD 39 billion by mid-year. The year-end starting point was USD 22 billion. Quarterly free cash flow still cleared USD 6 billion. That is a solvent, cash-generative balance sheet carrying more leverage than this equity has shown in years. The next several quarters decide whether Kisqali, Pluvicto label expansion, and the Avidity filings convert this replacement year into the mid-single-digit sales compound management still holds out through the end of the decade. Does the growth book still outrun Entresto's remaining European cliff once the second-half phasing reverses?