Novartis' Q2 Surge: Can Growth Outrun Generic Risks?

Novartis delivered a blockbuster Q2 2025, with key drugs Entresto and Kisqali driving record revenue growth. But can this momentum sustain as generic competition looms? Let's break down the numbers and assess whether the stock is undervalued or overpriced.

Key Drivers: Entresto and Kisqali Powerhouse

Novartis' cardiovascular and oncology portfolios are on fire. Entresto, the heart failure and hypertension drug, saw sales jump 22% to $2.36 billion in Q2, fueled by expanded use in Asia and hypertension approvals. Meanwhile, Kisqali (breast cancer) surged 64% to $1.18 billion, benefiting from its new early-stage U.S. indication.

These two drugs alone account for over 25% of total revenue, and their growth isn't slowing. Entresto's hypertension indication has just penetrated China and Japan, while Kisqali's NATALEE trial data shows durable benefits. Both drugs are cornerstones of Novartis' $14.1 billion Q2 sales, up 12% year-over-year.

Acquisitions: Regulus and Sironax Add Fuel to the Fire

The $800 million acquisition of Regulus Therapeutics (farabursen for polycystic kidney disease) and the Sironax brain delivery platform signal Novartis' focus on high-margin, innovative therapies. Farabursen's Phase III results (due Q3 2025) could validate this bet, while Sironax's blood-brain-barrier tech opens doors for neurological drugs—a $50 billion market.

Spin-Off Benefits: Sandoz Freedom

The Sandoz spin-off (completed Q1 2025) has freed Novartis to focus on high-margin “pure-play” innovation. Sandoz's generics division, now independent, will face pricing pressures, but Novartis' core R&D pipeline is now unshackled. This pivot aligns with its $10 billion share buyback plan, boosting shareholder returns.

Risks: Generics, Litigation, and Pipeline Hurdles

The dark clouds? Entresto's U.S. generic entry, expected mid-2025, is on hold due to litigation—outcome pending. Meanwhile, Tasigna and Lucentis have already seen sales crater (down 27% and 39%, respectively) from generics.

The Regulus Phase III trial for farabursen is a make-or-break moment. Failure could dent valuation, while success could add $2 billion+ annually by 2030.

Valuation: Fairly Valued or Overpriced?

GuruFocus's GF Value of $120.93 suggests Novartis is 1.6% undervalued at $118.99. Analysts are more cautious, with a “Hold” consensus and average price target of $113.95.

• PEG Ratio: At 5.1, it's 3x the industry median, but justified by high-growth assets (Kisqali's 64% growth, Entresto's 22%).
• Cash Flow: $6.3 billion free cash flow (up 37%) funds R&D and buybacks.

Investment Thesis: Hold for Long-Term Growth

The risks are real—generic erosion and Regulus' trial outcome—but the positives outweigh them. Entresto and Kisqali have multi-year growth legs, and the Sandoz spin-off removes a drag.

Action: Hold or buy Novartis if you can stomach near-term volatility. The $120 GF Value target and robust cash flow suggest this is a core holding for growth investors. Avoid only if you fear a failed farabursen trial or Entresto litigation loss.

Final Verdict

Novartis isn't a “buy the dip” stock—its growth is structural. With high-single-digit revenue growth and a low-teens core income outlook, it's a patient investor's dream. Ride the wave of innovation—just keep an eye on those generics.