European drugmaker Novartis (NVS), best known for blockbuster drugs like Entresto, Cosentyx, and Kesimpta, just announced a major U.S. investment. The $200 billion pharma company intends to invest $23 billion in U.S.-based manufacturing to conduct research and development and produce all its major drugs stateside. Judging by Novartis’ stock performance in the days following the news, the market signaled its approval. Donald Trump is likely to be delighted, too.
Novartis (NVS) price history over the past 5 days
Novartis’ latest move is a reactive and proactive response to an evolving supply chain that increasingly favors manufacturing in host countries. Novartis’ recent financial performance, which allows such investments, and its prescient adaptations make me bullish on its stock.
Novartis’ strategic shift comes amid President Donald Trump’s threats to add tariffs to pharmaceutical imports. A significant portion of Novartis’ revenues are generated in the U.S., so this should offset many costs if tariffs are long-lasting. This is part of a more significant trend in the industry. Other large pharma companies, like Eli Lilly (LLY) and Johnson & Johnson (JNJ), also plan to increase U.S. investments over the next few years.
Comparison Results between NVS, LLY and JNJ stocks
Novartis’ investments are particularly noteworthy because the company is not based in the U.S. but has some presence. Moreover, its intention to “produce 100% of its key medicines end-to-end in the U.S.” is a major supply chain strategy shift with more significant implications for European pharmaceutical manufacturing.
Could others follow suit? In an interview with Reuters, Novartis’ CEO, Vas Narasimhan, stated that although tariffs were a factor in this decision, they weren’t a “driving factor.” Instead, it makes sense for Novartis to invest more within the confines of its largest market.
Novartis’ financial performance is characterized by impressive revenue growth and robust cash generation. In 2024, net sales were up 11% year-over-year. Free cash flow was $16.253 billion, representing the cash Novartis has generated after subtracting the cash flows used to maintain operations and capital assets. So, for each $1 Novartis earns, over $0.30 of that goes straight to the bottom line.
Main Street Data showing NVS’ dividends and buybacks in US dollars since 2020
Novartis’ cash generation also allows for generous dividends. Its most recent dividend yield was 3.05%, which is almost twice the sector average.
Novartis (NVS) dividend data
As has been the case for the last few quarters, Novartis’ revenue growth was driven by strong performances from blockbuster drugs like Entresto ($7.9 billion in 2024), Cosentyx ($6.1 billion), and Kesimpta ($3.2 billion). Among the group, Kesimpta saw the most growth, with revenues growing nearly 50% year-over-year. Due to its convenient administration, Kesimpta is growing in popularity in the large multiple sclerosis treatment market.
Unfortunately for Novartis, Entresto will lose U.S. market exclusivity in mid-2025. That means generics will flood the market, leaving Novartis little market share and pricing power. This will be a major loss. However, Novartis has had years to plan. In addition to spending billions each year in support of its internal R&D pipeline, Novartis has been an active acquirer. It has been particularly active in the radiopharmacy space after acquiring Endocyte for $2.1 billion in 2018.
Novartis (NVS) revenue, earnings and profit margin history
This particular deal featured Pluvicto, a radioligand therapy for prostate cancer that was later approved in 2022. Pluvicto generated $351 million in Q4 alone. Notably, a key part of Novartis’ U.S. expansion plans includes two new radioligand therapy manufacturing plants. Looking ahead, Novartis projects a 5% compound annual growth rate until 2029 and believes its core margin will exceed 40% by 2027.
On Wall Street, NVS stock has a Hold consensus rating based on zero Buy, three Hold, and zero Sell ratings in the past three months. NVS’s average price target of $111 implies ~3% upside potential over the next twelve months.
In February, J.P. Morgan analyst Richard Vosser maintained a Hold rating on NVS after acquiring Anthos Therapeutics. The analyst was a bit cautious about the market opportunity for abelacimab, a monoclonal antibody designed to prevent blood clots, given its limited target population and future competition. Vosser pointed out the inherent risks of acquiring clinical-stage biotechs: drugs don’t always succeed, and the loss of investment can be total.
Novartis’ move to boost its presence in the U.S. is a sound business decision, especially in light of tariff fears. The company is setting the tone for European pharma companies operating in the U.S. market. By manufacturing products in the U.S., its supply chain is becoming more resilient against future global disruptions. The timing of the move could also be a political masterstroke, playing into the America First protectionist bandwagon led by Donald Trump.
However, this massive capital expenditure will occur during Entresto’s loss of exclusivity. Although this could contribute to some earnings difficulties in the short term, successful execution could create a new foundation for growth in the long term.
Moreover, Novartis appears to have the growth drivers in place, like Kesimpta, to soften Entresto’s impending decline. Altogether, Novartis is doing what is necessary to maintain a leadership position in biopharma, and this merits cautious optimism until proven otherwise.
