By Elsa Ohlen

Stock in one of the world's largest pharmaceutical companies, Novartis, fell after Goldman Sachs said its valuation looks stretched and reminded investors that patents are expiring on some of the company's drugs.

As the impact of generic competition steps up in the coming years, analysts led by James Quigley expect Novartis' growth rate to move lower. They changed their call on the stock to Sell from Neutral in a research note dated Friday.

Novartis has rallied nearly 30% so far this year amid strong earnings momentum and as investors have moved money into more defensive names. A share buyback program initiated this year also likely provided support for the stock.

The company, based in Switzerland, has outperformed most other large European pharma stocks, such as Novo Nordisk, Sanofi, AstraZeneca, GSK and Roche Holding in 2025.

However, the current share price doesn't adequately reflect the risks ahead, according to Quigley. He lowered his price target on Novartis's American depositary receipts to $118 from $119.

The company didn't immediately respond to a request for comment.

Novartis stock was down 2.1% to $124.98 in early trading Friday while the S&P 500 traded down less than 0.1%. Novartis currently trades at a forward price/earnings ratio of 13.6, about a 7% premium compared with the overall sector.

The outlook for earnings has become less clear following the launch of generic versions of Entresto, Novartis' best-selling heart drug, Quigley said. The next 12-18 months look fairly quiet, with no obvious factors that could push the stock higher, he said.

Generic versions of Entresto gained a market share of 35% in the first nine weeks since launching, Goldman Sachs said, arguing that the drag on Novartis total sales is likely to only increase. It may result in Novartis becoming a company with growth in the low-to-mid single digits, rather than growing by high single digits or low double digits.

Still, the drugmaker could prove Quigley wrong if it steps up merger activity and acquires medicines that could replace those losing patent protection in the early 2030s, he wrote. Earnings growth could also get a boost if management aggressively cuts cost to offset the loss of the Entresto patent.

Goldman Sachs isn't alone in being cautious. Only 20% of analysts tracked by FactSet rate the stock at Buy, compared with an average of more than 50% for companies in the S&P 500. Another 20% rate Novartis at Sell, while the rest have it at Hold.

Write to Elsa Ohlen at elsa.ohlen@barrons.com

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September 12, 2025 12:11 ET (16:11 GMT)

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