Novartis AG (NVS.US) has reported second-quarter financial results that surpassed market forecasts, signaling a potential return to a growth trajectory. The robust performance of its next-generation cancer treatments helped counterbalance the impact of generic competition against its key heart drug, Entresto.

The company's second-quarter sales rose by 3% year-on-year to $14.408 billion, exceeding the analyst consensus estimate of $14.042 billion. Core operating profit reached $5.940 billion, also beating the average analyst expectation of $5.34 billion. Core earnings per share came in at $2.41, surpassing the consensus estimate of $2.13.

Growth Drivers: New Drug Portfolio

The sales growth was primarily fueled by a series of innovative medicines. Sales of the CDK4/6 inhibitor Kisqali surged 44% to $1.695 billion. Revenue from the star B-cell therapy Kesimpta increased by 32% to $1.424 billion. Sales of the STAMP inhibitor Scemblix, used for treating chronic myeloid leukemia, jumped 89% to $562 million.

Revenue from the radiopharmaceutical Pluvicto, a targeted radioligand therapy for a specific type of prostate cancer, grew 43% to $651 million. Leqvio, the world's first small interfering RNA drug for lowering LDL cholesterol, saw sales rise 61% to $480 million. Rhapsody, a novel oral drug for chronic skin conditions and one of the medicines expected to drive future growth, generated $64 million in sales, exceeding market expectations.

Challenges from Generic Erosion

In contrast, sales of key products facing generic competition declined significantly in the quarter. Revenue from Entresto, the chronic myeloid leukemia drug Tasigna, and the thrombocytopenia treatment Promacta fell by 50%, 57%, and 64% year-on-year, respectively.

Strategic Focus and Outlook

This year represents a critical test for CEO Vas Narasimhan's strategy centered on innovative drugs. The company is navigating pressure from a patent cliff as former blockbusters like Entresto face sales erosion from generics, while a sufficient pipeline of new drugs has not yet fully taken over to drive growth. However, some analysts suggest the last quarter may have been the peak of the patent cliff's impact for Novartis.

Beyond the recently launched drugs mentioned, other new products remain in clinical trials. Novartis is expected to report key trial results for several experimental therapies, covering areas such as heart disease and multiple sclerosis. This includes del-desiran, a first-in-class treatment for a muscle disorder that targets the genetic cause, which came from the company's $12 billion acquisition of Avidity Biosciences.

To bolster its growth engine, Narasimhan has announced over $15 billion in acquisitions in the past year. These include deals for Avidity and its RNA drug pipeline, Tourmaline Bio which focuses on therapies for heart disease-related inflammation, and Synnovation Therapeutics, which develops experimental drugs targeting cancer-causing proteins.

Most recently, Novartis agreed to acquire Myricx Bio, an early-stage investment in cancer drugs with a candidate just entering clinical trials.

The company has also committed to building seven new manufacturing facilities in the United States as part of a $23 billion U.S. expansion plan aimed at increasing local production capacity and mitigating industry tariff impacts. A significant portion of this investment will focus on radioligand therapy, a treatment that uses targeted drugs to deliver radioactive material directly to tumors. Novartis is currently the only company globally with two approved radioligand therapy drugs: Pluvicto and Lutathera.