Novartis trial failure puts pressure on its growth strategy

Novartis shares fell 9.6% to CHF 113.42 on Tuesday morning, extending a sell-off that began one day earlier. The Basel-based pharmaceutical group lost ground after announcing that Del-desiran had failed to meet the primary endpoint in the Harbor study, a trial testing the treatment in patients with myotonic dystrophy type 1, a progressive muscle disorder.

The move followed a 3.2% decline on Monday, when investors learned that pelacarsen, an experimental heart medicine, had also missed its primary endpoint. Novartis had reached a record CHF 132.68 just the previous week. The rapid reversal has made the company’s research pipeline the immediate focus for investors who had been pricing in continued growth from new medicines.

The Del-desiran result matters beyond one programme. Novartis obtained the treatment through its takeover of US biotech company Avidity Biosciences, alongside other drug candidates that have produced positive trial results so far. Zurich Cantonal Bank said the outcome had damaged confidence in the wider Avidity portfolio. Vontobel described the result as a significant pipeline setback. The market reaction shows how quickly sentiment can change when several late-stage development risks surface together.

Around 150 patients took part in the 54-week Harbor study, which measured how quickly participants could open their hands. The test sought to capture the muscle stiffness associated with myotonic dystrophy type 1, a condition that progressively affects movement and daily function.

Del-desiran did not achieve the hoped-for result on that primary endpoint. Novartis said the data showed indications of an effect in other criteria examined, leaving the company with further evidence to assess. Those secondary findings may shape discussions about the programme’s next steps, but the failed primary endpoint has already forced analysts to remove expected commercial value from their models.

Vontobel had estimated that Del-desiran could generate peak annual sales of $3 billion if development succeeded, even after accounting for the risk of failure. UBS had forecast up to $2 billion on a comparable basis. Vontobel is now removing its sales forecast from its valuation model, while UBS also considers the setback negative.

The episode illustrates the financial leverage of a single late-stage trial. A medicine can address a serious unmet need and still fail to demonstrate the required benefit under a specific measure. For investors, the result converts years of research and acquisition spending into a far less certain asset.

The Avidity acquisition now carries a confidence problem, even though other compounds have reported positive results. Zurich Cantonal Bank’s assessment points to the way investors judge portfolios acquired from biotech companies. They rarely value each candidate in isolation for long. A failure in one prominent programme can raise doubts about the quality of the scientific platform, the selection process and the assumptions used to price the deal.

That pressure will test Novartis’s strategy of using external innovation to strengthen its pipeline. Acquisitions can bring promising technologies, specialist teams and medicines that would take years to build internally. They also transfer development risk to the buyer at a high point in the asset’s perceived value. If a pivotal trial fails, the purchaser absorbs the financial impact and must explain what remains viable.

The company has faced several research-related shocks in a short period. Alongside the Del-desiran and pelacarsen setbacks, Novartis halted several experimental cell-therapy trials at the end of August after the deaths of three patients. Those events involve different treatments and scientific areas, so they do not establish a single failure across the business. They do, however, give investors more reasons to scrutinise governance, trial design and the balance of internal and acquired research.