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.

Developing a new medicine cost an average of $2.23 billion in 2024, according to figures for the world’s 20 largest biopharmaceutical companies. That average was 65% higher than in 2014, increasing the stakes of every pipeline decision, from early laboratory work to large late-stage trials.

For major Swiss drugmakers, acquisitions offer a way to access innovation without waiting for every project to emerge from internal laboratories. The price is exposure to scientific uncertainty that no transaction can remove. Trial results can disappoint because a treatment fails to improve the chosen primary measure, because the study population responds differently than expected, or because a promising biological mechanism does not translate into meaningful patient benefit.

The Del-desiran result also highlights the limits of sales forecasts. Vontobel and UBS assigned multibillion-dollar potential to the treatment while incorporating the possibility of failure. Such risk-adjusted estimates help investors compare programmes, but they can still create a strong market narrative around an unapproved medicine. Once the key trial misses, analysts must strip out revenue that may have supported the company’s valuation and growth outlook.

Novartis now needs to show that its broader pipeline can replace lost expectations. That requires clear evidence on remaining Avidity candidates, disciplined capital allocation and transparent explanations of how trial risks are being managed.

Novartis must now rebuild confidence while preserving its appetite for external science. The market’s reaction does not prove that the Avidity portfolio has failed. Other compounds from the acquisition have shown positive trial results, and Novartis said Del-desiran produced indications of an effect on additional criteria. Those details may support further analysis, regulatory discussions or a reassessment of the programme’s future.

The immediate task is more practical. Investors will look for a clear account of what the Harbor data means, whether any follow-up study is justified and how much capital the company will commit. They will also examine forthcoming results across the wider pipeline for signs that Del-desiran was an isolated disappointment rather than evidence of broader execution problems.

Switzerland has a direct interest in the outcome. Novartis is one of the country’s largest corporate research engines and a major employer in Basel, while its share price is important to the Swiss market. A weaker pipeline can affect not only valuation, but also research priorities, partnerships and the flow of investment into Swiss life sciences.

The company’s next communications will therefore carry unusual weight. Management needs to separate the fate of one muscle-disorder treatment from the performance of the full portfolio, while giving investors enough detail to judge whether its acquisition-led growth strategy remains credible.