Novartis Faces Increased Scrutiny After Major Drug Trial Setbacks Shake Market
Novartis Drug Trial Failures and Market Impact
By Bhanvi Satija, Dave Graham and Marleen Kaesebier
Del-Desiran Trial Failure and Share Price Reaction
ZURICH, Sept 8 (Reuters) - Novartis said on Tuesday its experimental drug for a muscle-wasting disorder failed a late-stage study, the second major trial setback in days, sending the Swiss drugmaker's shares down about 11% in its worst trading day on record.
The setback for del-desiran, which Novartis acquired through its recent $12 billion acquisition of Avidity, increases pressure on CEO Vas Narasimhan and his M&A strategy to build up the firm's pipeline.
Details of the Failed Study
The drug was being tested in myotonic dystrophy, a muscle-wasting disease with no approved treatments. Novartis said the drug did not meet its main goal of improving video hand opening time (vHOT), a measure of how quickly patients can open their hand after making a fist that gauges muscle stiffness.
Analyst and Investor Reactions
The drug "should have been a 'must win' for the company," said James Eugene, an analyst at Novartis shareholder Verso Investment Management, adding the failure would put more pressure on dealmaking and other drugs in development.
"This recent setback would have dented confidence in its acquisition strategy given the size of the deal and the relatively high expectations of success for del-desiran."
Broader Pipeline Challenges
The trial failure means Novartis has now missed on two of three key tests for its pipeline this year. It also recently halted eight of 10 studies for an experimental cell therapy, rap-cel, after three patients died.
Market Value and Sales Projections
TRIAL DENTS CONFIDENCE IN NOVARTIS PIPELINE
Novartis' shares closed down 10.9% on Tuesday in a record daily fall, wiping about 26 billion Swiss francs ($32 billion) off the company's market value.
Barclays analysts had estimated peak annual sales of $3.1 billion for del-desiran and assigned the drug a 60% chance of success following positive mid-stage data.
Industry and Peer Impact
Shreeram Aradhye, Novartis' president of development and chief medical officer, said developing therapies for diseases such as myotonic dystrophy type 1 remained challenging and that setbacks were part of scientific progress.
The results also weighed on other drug developers in U.S. premarket trading. Shares of Dyne Therapeutics and Sarepta Therapeutics, which are developing treatments for muscular dystrophy, fell 27% and 11%, respectively.
Future Growth Prospects
Investors had been counting on del-desiran, heart drug pelacarsen and anti-inflammatory drug remibrutinib to drive growth as Novartis faces declining sales of older drug Entresto and prepares for patent expiries early in the next decade.
"A lot is riding on remibrutinib, and there is now a greater burden for it to perform," Eugene said. The drug was successful in a multiple sclerosis study and data from another skin disease trial is expected later this year.
Vontobel analyst Stefan Schneider said he was not changing his assessments of the other two therapies Novartis acquired via Avidity, although the latest setback had further weakened confidence in the company and some investors were likely to flee the stock.
Pressure on CEO Vas Narasimhan
Leadership and Strategic Challenges
PRESSURE ON CEO NARASIMHAN
Del-desiran's results come a day after Novartis shares fell more than 3% following the failure of its closely watched trial of a cholesterol drug, pelacarsen, which was also seen as a potential billion-dollar opportunity.
The back-to-back failures add pressure on Narasimhan who has focused on rebuilding Novartis' pipeline after spinning off its generics and consumer businesses while confronting what he has called the company's steepest patent cliff in decades.
Financial Guidance and Analyst Perspectives
Novartis reiterated its full-year guidance and said it continues to expect sales to grow at a compounded annual rate of 5% to 6% between 2025 and 2030. However, analysts said this goal will now be perceived as unattainable due to two consecutive failures.
"Worries over post-2030 growth will now likely re-emerge," Jefferies analyst Michael Leuchten wrote in a note.
($1 = 0.8107 Swiss francs)
(Reporting by Dave Graham, Bhanvi Satija, Marleen Kaesebier and Sriparna Roy; Editing by Ludwig Burger, Mark Potter and Tomasz Janowski)
