Fitch Ratings has affirmed Novartis AG's Long-Term Issuer Default Rating (IDR) and senior unsecured rating at 'AA-'.
The Outlook on the IDR is Stable. Fitch has subsequently withdrawn the ratings. A full list of ratings is below.
The IDR reflects Novartis's leading position in the innovative pharma sector, with solid growth driven by recent launches that demonstrate its successful research and development (R&D) pipeline. This has resulted in robust free cash flow (FCF) margins, and low leverage, despite generous shareholder distributions.
The Stable Outlook assumes that Novartis's revenue growth will slow to low- to mid-single digits as the company starts facing competition for some of its highest grossing products that are losing exclusivity. Nevertheless, Fitch expect the pipeline to offset some of those pressures, leading to EBITDA margins around 40% and double-digit FCF margins, despite increased investments in R&D and capex, which should result in EBITDA net leverage comfortably below 1.5x.
Fitch has withdrawn Novartis's ratings for commercial reasons. It will no longer provide ratings or analytical coverage of the company.
Key Rating Drivers
Pipeline Execution Underpins Growth: The rating reflects Novartis's position as a leading global innovative pharma company with a robust pipeline that has led to double-digit organic growth on innovative products over the last two years. This was driven by successful launches of products like Pluvicto, Scemblix, Leqvio, as well as increased indications for Kisqali and Cosentyx.
Loss of Exclusivity Pressures: We forecast organic growth will slow to low- to mid-single digits from 2026, as some of the company's highest grossing products will face competition after losing exclusivity in the US (Entresto, Promacta and Tasigna). We expect that growth of new launches, coupled with the ramp up of recent launches, like Fabhalta, Vanrafia and Rhapsido, will offset these pressures while keeping EBITDA margins at or close to 40%.
Novartis has made strategic acquisitions this year, including Anthos, Regulus, and Tourmaline, with treatments that are undergoing or are about to start Phase III or Phase II clinical studies. These acquisitions complement its pipeline and could provide further growth opportunities.
EBITDA Growth Supports Investment Plan: We expect that the company's plans to invest in its US footprint will result in capex intensity above 7% to 2028 (including capex on intangible assets), an increase from previous years. We anticipate EBITDA generation will support these investments, leading to double-digit FCF margins, consistent with its post-Sandoz spin-off FCF margin.
Financial Flexibility Supports Low Leverage: We believe Novartis's FCF generation will support high shareholder distributions through progressive dividend payments and share buybacks. We also expect the company to continue improving its early-stage pipeline with targeted acquisitions that complement its existing treatments. Novartis has adequate financial flexibility to sustain these outflows, in our view, and sufficient headroom for its EBITDA net leverage to remain comfortably below our 1.5x EBITDA net leverage negative sensitivity.
Heightened Industry-wide Risks: In Fitch's view, several industry-wide risks are increasing. These include potential US drug pricing reforms, as outlined in the Executive Order signed on 12 May as well as potential tariffs and retaliatory measures that could result in increased active pharmaceutical ingredients and manufacturing costs, reduced pricing power in international markets, and increased capex if supply chain adjustments are necessary. We view Novartis's immediate risk as limited from the 26 September announced tariffs, due to its intended US investment plan. Any changes would constitute event risk that could negatively affect profitability and cash flows if realised, as Novartis generates over 40% of its revenues from the US.
Peer Analysis
Novartis's 'AA-' rating remains firmly positioned among Fitch-rated global pharma peers.
After the Sandoz spin-off, Novartis is smaller than Roche Holding Ltd (AA/Stable) and less diversified, as the latter holds its diagnostics division and its innovative pharmaceutical operations. Novartis now has higher margins and reported lower leverage since Roche repurchased the stake owned by Novartis. However, Roche's portfolio should lead to higher organic revenue growth, given the maturity of its latest launches compared with Novartis, which still faces significant loss of exclusivity pressures from Entresto, Promacta, Tasigna and Xolair over the next four years.
Other lower-rated pharma peers, like Amgen Inc. (BBB/Positive) and Bayer AG (BBB/Stable), have higher leverage metrics than Novartis and, in the case of Amgen, are smaller in scale.
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
Organic revenue growth in the high-single digits for 2025; revenue growth to slow for the next three years as multiple blockbuster therapies face loss of exclusivity pressures
EBITDA margin (Fitch-defined) between 39.5% and 41% in 2025-2028
Total net acquisitions of USD18 billion in 2025-2028, including the Regulus, Anthos, and Tourmaline Bio transactions agreed in 2025
Capex (including intangible assets) at 7%-8% of sales over 2025-2028
Progressive dividend policy, with about USD7.8 billion paid in 2025
Net share buybacks of USD8.5 billion in 2025, USD7 billion in 2026 and USD6 billion annually in 2027-2028
RATING SENSITIVITIES
Not applicable as the ratings have been withdrawn
Liquidity and Debt Structure
Novartis's liquidity is strong, with cash and marketable securities at USD6.5 billion at June 2025, excluding USD0.5 billion that Fitch restricts as not readily available for debt service because of intra-year working-capital fluctuations. Novartis also has undrawn committed bank facilities of USD6 billion maturing in May 2029, with two options to extend them for an extra year. All this comfortably covers short-term debt maturities of about USD8.3 billion at June 2025.
Issuer Profile
Novartis is a Switzerland-based innovative pharmaceutical company operating globally.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Click here to access Fitch's latest quarterly Global Corporates Sector Forecasts Monitor data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.
ESG Considerations
Novartis has an ESG Relevance Score of '4' for 'Exposure to Social Impacts', due to social pressure to contain healthcare costs. These risks are particularly relevant to the profitable US market, which contributes to about 40% of the group's global sales. High risk of potential new tariffs on Swiss pharma imports into the US or additional substantial investments into the US-based manufacturing footprint would increase the pressure on the company's credit profile and are relevant to its ratings in combination with other factors.
The US Inflation Reduction Act introduced by the Biden administration included mechanisms to manage prices for selected and innovative drugs for public payers. Entresto was selected as one of the initial drugs for this programme. Fitch deems the effect of the designation neutral in over the next 12-18 months. Over the longer term, the pricing dynamics could affect R&D and capital allocation decisions as the list grows. Further downside risks to drug pricing have increased following the recent U.S government initiatives aimed at significantly reducing prescription drug prices. An Executive Order signed on 12 May aims to cap prices paid by the US government based on pricing in other developed nations. These policies have a negative impact on Novartis's credit profile and are relevant to its rating in conjunction with other rating factors.
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
