Novartis (NVS) recorded about $2.2bn in charges related to two drugs that failed in late-stage studies, even as the Swiss drugmaker raised its full-year profit expectations.
Operating income fell 61 per cent in the third quarter, hurt by higher research and development costs and a $1.9bn partial impairment charge for del-desiran. The drug was one of two consecutive major trial setbacks unveiled in September that sent Novartis shares tumbling. A further $300mn charge was booked for pelacarsen, a heart drug that has been written off completely.
Del-desiran, which is being tested for myotonic dystrophy, a muscle-wasting disease with no approved treatments, came to Novartis through its $12bn acquisition of Avidity, announced in 2025. Its estimated value was cut from an original $7.48bn because of development delays. Mukul Mehta, chief financial officer, said the company still believes the drug will succeed, unlike pelacarsen.
Novartis lifted its full-year guidance for core operating income to low single-digit percentage growth, from a previously expected low single-digit decline, after strong third-quarter demand for its key cancer and multiple sclerosis drugs. It maintained its forecast for low single-digit growth in net sales. Core operating income, which is adjusted for special items, rose 10 per cent at constant exchange rates on higher net sales, ahead of analyst expectations. Shares in the Basel-based group were trading up 1.5 per cent in morning trading.
The setbacks heightened investor scrutiny of Novartis’s business development strategy and called its valuation into question. Vas Narasimhan, chief executive, nonetheless said he remained confident in the group’s approach to acquisitions. He described the setbacks as part of drug development and said some in the market had overreacted. “We don’t need to change our M&A strategy,” he told journalists, adding that Novartis remains happy with the Avidity deal, which also included other experimental drug candidates.
Mehta said improving free cash flow, which should surpass $20bn over the next five years, would leave enough room for bolt-on acquisitions of around $2bn.
Artisan Partners (APAM), one of Novartis’s top 20 shareholders, had called in September for a shake-up of the board to improve corporate governance, after the company lost nearly $30bn in market value following the disappointing trial updates.