Novartis shares drop following late-stage drug trial failure

Novartis shares tanked on Tuesday after the pharmaceutical giant said its del-desiran drug for muscle-wasting disorder failed in a late-stage trial.

The company's stock was down almost 10.5% in late afternoon trade, as investors reacted to what was its third drug trial setback in a week. It put the shares on track for their worst trading day since March 2020.

The del-desiran result comes just days after Novartis said its pelacarsen drug failed to reduce the risk of cardiovascular events in a late-stage trial, and a week after announcing it had paused eight clinical trials of an experimental cell therapy, rap-cel, after three patients died.

Novartis said its global phase III HARBOR study, which had been testing del-desiran in patients with myotonic dystrophy type 1, failed to show that the drug significantly improved patients' ability to open their hands faster than a placebo.

"Novartis is evaluating the full HARBOR dataset and will engage with health authorities to determine the most appropriate development path for del-desiran," the company said in a news release.

Del-desiran is one of three antibody oligonucleotide conjugate therapies that were added to Novartis's neuromuscular pipeline when it acquired Avidity Biosciences for around $12 billion last year.

"Developing therapies for a complex disease like [myotonic dystrophy type 1] remains challenging, and setbacks are part of scientific progress," Shreeram Aradhye, president of development and chief medical officer at Novartis, said in a statement Tuesday.

"As we continue to evaluate the full HARBOR dataset, we remain committed to identifying the most appropriate development path for the del-desiran program and advancing innovative approaches for people living with [myotonic dystrophy] and other serious neuromuscular diseases."

Novartis also said Tuesday that it still expects its sales to grow by 5% to 6% a year, on average, until 2030.

However, analysts cast doubt on the company's outlook following Tuesday's announcements.

Novartis' growth target "will likely be perceived as unattainable without further M&A, which is now questionable again," the equity research team at Jefferies said in a Tuesday morning note.

The Swiss drugmaker has also had some positive results in recent tests. A late-stage trial of the drug remibrutinib delivered "a clinically meaningful delay in disability progression" in patients with relapsing multiple sclerosis, the company announced last week. Remibrutinib is an experimental treatment for multiple sclerosis.

However, even with the recent remibrutinib success, analysts at Jefferies said they expect it will be challenging to "get confidence" in that trial without del-desiran and del-brax. Confidence in del-brax is likely not expected to come until Phase III data emerges in 2028, they said.

"As a result, [business development] & M&A likely remain a key part of the story for securing management's longer-term mid-[single-digit] growth aspiration, with management's ability to conduct larger deals now likely to remain under scrutiny," the analysts added.

Analysts at Barclays said del-desiran and pelacarsen had represented around $5 billion in risk​-​adjusted peak sales opportunities — but more importantly, they noted, del-desiran had been a test case for Novartis's $12 billion Avidity deal.

Its failure casts doubt on the acquisition and the company's ability to offset upcoming patent expiries through mergers and acquisitions, they said in a note.

"We expect shares to materially [underperform], and Novartis' 20% sector premium may now be debated," they said.