The arithmetic of Novartis’s balance sheet is getting harder to ignore. The Swiss pharma giant’s net debt surged to $39.4 billion by the end of June 2026, nearly double the $21.9 billion recorded just six months earlier — a pace of deterioration that would raise eyebrows at any company, let alone one with a triple-A credit rating.
The numbers, laid bare in the group’s July 21 earnings release, tell a story of aggressive capital allocation. Novartis generated $8.9 billion in free cash flow during the first half, but that was dwarfed by $15.3 billion in outflows for acquisitions and intangible assets, plus $9.1 billion in dividend payments. The company also plowed $2.8 billion into share buybacks during the period, repurchasing 18.2 million shares. Of the $10 billion buyback program launched in July 2025, $5.6 billion remains.
For now, the rating agencies are holding firm. Moody’s rates Novartis Aa3, while S&P Global assigns AA-. But the question hanging over the stock is whether that discipline can survive if the M&A spree continues at this clip.
Growth Engine Still Humming
Despite the balance sheet strain, the underlying business delivered a quarter that blew past analyst expectations. Second-quarter net sales rose 3% to $14.4 billion, or 1% on a currency-adjusted basis. Core operating profit held steady at $5.94 billion, well above the consensus estimate of $5.3 billion. Core earnings per share hit $2.41, beating the $2.16 analysts had penciled in.
The growth was powered by a cohort of newer drugs that are more than compensating for the patent cliff on Entresto, the heart-failure blockbuster now facing generic competition. Kisqali, the breast cancer treatment, surged 43% to $1.7 billion in sales. Scemblix, a leukemia drug, jumped 89% to $562 million. Kesimpta rose 32%, Pluvicto climbed 43%, and Leqvio advanced 59%. Cosentyx, an older stalwart, grew 10% to $1.8 billion.
Entresto, by contrast, saw revenue nearly halve to $1.18 billion as generics ate into its franchise — a drag Novartis had long anticipated but which continues to weigh on the top line.
Net income fell 19% to $3.26 billion, dragged down by higher taxes and rising interest expenses. That compares with $4.0 billion in the same quarter last year.
Should investors sell immediately? Or is it worth buying Novartis?
A Pipeline in Overdrive
CEO Vas Narasimhan is betting that acquisitions will fill the gaps left by Entresto’s decline. In early July, Novartis agreed to buy Myricx Bio, a biotech focused on antibody-drug conjugates for cancer, for up to $1.5 billion. That deal, expected to close in the second half of 2026, was followed by the takeovers of Pikavation in breast cancer and Excellergy in immunology.
Narasimhan has signaled a shift toward smaller, bolt-on deals, though he has not ruled out larger transactions. The question is whether that self-imposed restraint will hold — and whether the balance sheet can absorb more firepower without jeopardizing the buyback program or the credit rating.
On the regulatory front, Novartis scored several wins. Fabhalta received traditional FDA approval for IgA nephropathy in the US and EU approval for paroxysmal nocturnal hemoglobinuria. Rhapsido was cleared in the EU and Japan for chronic spontaneous urticaria, while Itvisma won EU approval for spinal muscular atrophy. The company also filed for FDA approval of del-zota for Duchenne muscular dystrophy and released positive early-stage data on del-brax for facioscapulohumeral muscular dystrophy.
Market Reaction and What’s Next
Investors took the results in stride. The stock rose 2.69% on the day to €135.04, bringing its year-to-date gain to 14.27%. The shares trade 8.05% above their 200-day moving average of €124.87, suggesting the medium-term uptrend remains intact. The relative strength index sits at 52.8, a neutral reading that leaves room for movement in either direction.
Analysts were broadly positive. JPMorgan called the results strong, Bernstein noted a solid beat, and Vontobel described the quarter as very solid. LBBW raised its price target to 125 Swiss francs but kept a “Hold” rating.
The 30-day volatility of 25.62% suggests the market has not fully priced in the risks. If Novartis follows through on its promise to slow the M&A pace and free cash flow holds steady, net debt could stabilize in the coming quarters without triggering a rating downgrade or forcing a cut to buybacks. But if the dealmaking accelerates or margins come under additional pressure, the market’s patience with the capital allocation strategy may fray.
The next checkpoint comes on October 27, 2026, when Novartis reports third-quarter results. Analysts are expecting core EPS of $2.19. That report will show whether the debt trend is reversing — or deepening.
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