Novartis Shares Slip After BofA Securities Downgrade
Novartis (SIX:NOVN) came under pressure after BofA Securities downgraded the stock from “buy” to “neutral,” a shift that points to a more cautious stance on the Swiss drugmaker. In the latest session, the shares fell 2.4% to CHF 96.48. The move reflects concerns about a slower path to new catalysts, questions around long-term growth, and pending legal risks that could weigh on sentiment.
BofA paired the rating change with a lower price target, trimming its view from CHF 120 to CHF 110. The reassessment suggests it may be harder for Novartis to meaningfully outperform in the near term, even after a strong run so far this year.
Why the Downgrade Stands Out
The shift in tone is striking because Novartis had outpaced the broader European pharmaceutical sector by roughly 12% since the start of the year. That outperformance was supported by a steady drumbeat of good news: multiple Phase III readouts went well—among them Kisqali, Pluvicto, Iptacopan, and Scemblix—and earnings repeatedly came in ahead of market expectations.
In other words, momentum had been on Novartis’ side. BofA’s cooler stance doesn’t erase that track record, but it does argue that the set-up from here looks less straightforward, with fewer near-term catalysts and more visible risks.
Key Risks BofA Flags
At the top of the list is patent litigation tied to Kisqali, a cornerstone therapy for breast cancer in Novartis’ portfolio. The ongoing lawsuit with MSN Labs over Kisqali’s U.S. patent is a swing factor: BofA notes that while the probability of Novartis losing is relatively low at 20–25%, the consequences would be material for the company’s financials.
Should Novartis lose that case, BofA estimates an 18% cut to projected earnings per share by 2030. A setback of that scale could also prompt reductions to consensus estimates, adding pressure to the shares as confidence resets.
Generic Pressure on Entresto
Another challenge sits on the horizon for Entresto, Novartis’ leading heart failure drug. BofA expects generic versions to reach the U.S. market by mid-2025, a timeline that would put a clear dent in revenue as lower-cost competitors enter the field.
BofA’s forecasts for Entresto are already below where the market sits today. It models sales that are 8% under consensus for 2025 and 13% below for 2026. Losing share to generics is a familiar industry hurdle, but it’s still a meaningful one for Novartis in the short to medium term.
Valuation Reset and the Road Ahead
Valuation is part of the downgrade story, too. BofA trimmed its 2025 price-to-earnings multiple estimate for Novartis from 16x to 15.5x, citing the approach of patent expirations across several key franchises—Cosentyx, Kesimpta, and Kisqali among them. These cliffs don’t erase the company’s strengths, but they do frame the next few years as a period that requires careful execution.
Even so, BofA doesn’t see the next decade as a straight line down. While expectations for 2024 and 2025 are tempered, the firm projects a stronger 2028, with earnings running 16% above consensus. That view rests on potential new launches that could widen Novartis’ growth avenues as the decade progresses.
Bottom line: the downgrade reflects nearer-term caution—legal uncertainty, looming generics, and a valuation nudge lower—against a backdrop where longer-term prospects still look constructive if the pipeline delivers.
Frequently Asked Questions
Why did Novartis shares fall?
The stock declined 2.4% to CHF 96.48 after BofA Securities cut its rating from “buy” to “neutral,” signaling a more cautious view due to slower new catalysts, long-term growth questions, and legal risks.
What changed in BofA’s outlook?
BofA lowered its price target from CHF 120 to CHF 110 and trimmed its 2025 P/E estimate to 15.5x from 16x, reflecting nearer-term headwinds and upcoming patent expirations.
How had Novartis been performing before the downgrade?
Year to date, the shares had outperformed the European pharma sector by about 12%, helped by positive Phase III results for Kisqali, Pluvicto, Iptacopan, and Scemblix, plus repeated earnings beats.
What are the main risks BofA highlights?
Two standouts: patent litigation over Kisqali—where losing could cut 2030 EPS by 18% despite a 20–25% loss probability—and looming U.S. generic competition for Entresto by mid-2025.
Is the longer-term outlook still positive?
BofA is cautious for 2024–2025 but sees potential strength later in the decade, forecasting 2028 earnings 16% above consensus on the back of prospective new product launches.
