Novartis (SIX Swiss: NOVN and NYSE: NVS) lost more than just the roughly $30 billion in market capitalization (share price times the number of outstanding shares) that dried up this past week when the company said its neuromuscular candidate delpacibart etedesiran (del-desiran) failed a Phase III trial.
Arguably the most dramatic loss faced by Novartis is satisfaction with its direction by major investors—one of which, Artisan Partners, went public with criticism of the company’s board.
M. David Samra, managing director at Artisan Partners and founding partner of International Value Group, called on the board—specifically, its chairman Giovanni Caforio—to strengthen its oversight of the company’s acquisitions.
“I think he needs to make changes at the board level. One of them should be on improving the team that’s doing these deals because clearly they have been uninspiring at best,” Samra told Reuters in an interview.
“The party is over,” Samra declared, complaining that the acquisition deals lowered the value of Novartis shares. “The acquisition track record is not very good.”
Among the acquisitions cited by Samra were Novartis’ $12 billion buyout of Avidity Partners, a deal completed in February with the aim of bolstering the buyer’s neuroscience pipeline with three late-stage programs—del-desiran and two other candidates in a new class of RNA therapeutics that Avidity and now Novartis call Antibody Oligonucleotide Conjugates (AOCs™).
The companies have reasoned that the AOC approach can safely and effectively treat serious genetic neuromuscular disorders by delivering RNA to muscle tissue via TfR1 mAb, in order to enable modulation of the genetic mechanism of disease.
But that argument was undermined when Novartis acknowledged that del-desiran failed the pivotal trial (HARBOR, NCT06411288) by missing the study’s primary endpoint of statistically significant improvement vs. placebo in video Hand Opening Time (vHOT) through week 54. vHOT is a frequently used measure of hand myotonia, according to a 2024 study, and involves clinical experts reviewing videos to measure the time from hand grip to opening.
Del-desiran is an AOC candidate designed to target the underlying cause of DM1. The therapy consists of a muscle-targeting monoclonal antibody that binds to the transferrin receptor 1 (TfR1) and is conjugated to a small interfering RNA (siRNA) designed to induce degradation of the disease-causing toxic myotonic dystrophy protein kinase (DMPK) mRNA.
Del-desiran has received the FDA’s Orphan Drug, Fast Track, and Breakthrough Therapy designations, as well as the European Medicines Agency’s Orphan Medicinal Product Designation.
“Needs to be penalized”
“If you do a $12 billion deal and it goes to zero, the management needs to be penalized for that,” Samra said, though he acknowledged that the Avidity acquisition may yet yield successful candidates that can be developed into marketable drugs.
Samra also took issue with Novartis’ acquisition of MorphoSys for €2.7 billion ($3.1 billion), completed in May 2024. That deal was intended to bolster the buyer’s oncology pipeline with what seemed like a promising late-stage myelofibrosis candidate in pelabresib, as well as an early-stage candidate under study in patients with solid tumors or lymphomas.
Within months, Novartis delayed earlier plans to pursue mid-2024 approval filings for pelabresib and later said more time was needed to decide a regulatory path for the drug based on 48-week data from the Phase III MANIFEST-2 trial (NCT04603495). However, the combination of pelabresib plus ruxolitinib met the study’s primary endpoint, a reduction of at least 35% in spleen volume from baseline (SVR35) at 24 weeks: 65.9% of pelabresib-ruxolitinib patients (N=214) vs. 35.2% of placebo-ruxolitinib patients (N=216)
Earlier this year, Novartis launched the Phase III MANIFEST-3 trial (NCT07357727) assessing pelabresib in combination with ruxolitinib in patients with myelofibrosis. Novartis markets ruxolitinib outside the United States as Jakavi®, while Incyte markets the drug Stateside as Jakafi®. The trial’s estimated completion date is May 2028.
Del-desiran was one of three clinical setbacks for Novartis within a week. On September 4, the company and partner Ionis Pharmaceuticals (Nasdaq: IONS) acknowledged that their co-developed pelacarsen failed the Phase III Lp(a)HORIZON trial (NCT04023552) by missing its primary endpoint of reducing the risk, compared with placebo, of cardiovascular events.
Two days earlier, Novartis paused eight trials assessing its autoimmune and neurological disease candidate rapcabtagene autoleucel (rap-cel), after three patients treated with the personalized, CD19-directed chimeric antigen receptor T cell (CAR T) therapy died after experiencing immune effector cell-associated hemophagocytic syndrome.
Not Blaming CEO
Samra stopped short of blaming Vas Narasimhan, who has been Novartis’ CEO since 2018, for the company’s clinical setbacks, saying the chief did a “very good job”—with Reuters suggesting by juxtaposition a possible explanation: The company’s shares have jumped 60% in value during his tenure at the helm.
But Novartis’ primary shares in Switzerland have only risen 2% from CHF 108.50 ($132.88) so far this year and climbed 11% from CHF 101.78 ($124.65) year-over-year.
Worse, the announced failure of del-desiran on September 8 propelled Novartis shares to their worst one-day selloff since March 2020, early in the COVID-19 pandemic. Shares trading on the SIX Swiss Exchange skidded 11% from CHF 125.46 ($153.64) to CHF 111.80 ($136.91), while Novartis’ American depositary shares traded on the New York Stock Exchange slid 14% from $159.99 to $137.72.
Both shares all but plateaued for the rest of the week, failing to regain momentum. At the end of trading Friday, the SIX Swiss shares inched up 0.2% to CHF 112.04 ($137.21), while the NYSE shares dipped a further 0.4%, finishing the week at $137.16.
Artisan’s flagship fund, the Artisan International Value Fund, listed Novartis as fourth among its top 10 holdings, accounting for 3.6% of its total portfolio as of June 30, according to its most recent quarterly fact sheet. As of that date, Artisan reported $45.184 billion in assets, which would have made the value of Artisan’s stake in Novartis approximately $1.627 billion.
That stake likely increased later in the summer before the del-desiran news, since Artisan’s website lists the total value of the value fund at $46.001 billion as of August 31.
In addition to del-desiran, Novartis acquired delpacibart zotadirsen (del-zota™), an Exon 44-targeting AOC designed to treat Duchenne muscular dystrophy (DMD), and delpacibart braxlosiran (del-brax™), an AOC intended to treat facioscapulohumeral muscular dystrophy (FSHD) by targeting DUX4.
Del-zota is under evaluation in the Phase II EXPLORE44OLE™ (NCT06244082) trial following completion in November 2024 of the Phase I/II EXPLORE44™ (NCT05670730) study. Del-brax is being assessed in the Phase III FORTITUDE-3™ trial (NCT07038200).
In June, Novartis trumpeted positive data from the FORTITUDE Phase I/II trial (NCT05747924) of del-brax, saying the study’s biomarker cohort met its primary and key secondary endpoints, with reductions in KHDC1L (cDUX) and creatine kinase biomarker levels indicating both strong target engagement and reduction in muscle damage in patients with FSHD.
Investors weigh in
Samra’s criticism of Novartis’ board was echoed by what Reuters said was some of seven other representatives of shareholders, five of whom were quoted by name in a follow-up article.
“It’s going to take a while for confidence to return,” said Gillian Hollenstein, lead manager at Point Capital Navigator Fund, which, as of September 10, listed Novartis as tenth of its top 10 holdings, accounting for 1.8% of its total portfolio. The fund reported CHF 124.38 million ($152.33 million) in total assets as of that date, making Point Capital’s stake total CHF 2,238,840 (more than $2.7 million).
“They would have been better off doing some more smaller acquisitions, bolt-on ones rather than trying to hit it out of the park,” Hollenstein added.
Avidity was the largest of 11 biopharma acquisitions Novartis has carried out since 2023. They all could total up to $32.9 billion if Novartis achieves the milestones called for in five of the deals.
“It’s a little bit premature to call for heads at this point,” said Daniel Bolanowski, portfolio manager at investor Arctic Asset Management, since Avidity-created del-zota and del-brax could ultimately succeed in the clinic and generate revenue. But Bolanowski added that the stock selloff suggested “a deeper trust issue” with the company’s business development approach, beyond the failure or reduced value of del-desiran.
Arctic Aurora, as of June 30, had a Novartis investment it quantified as 2,660 shares valued at a total NOK 4,124,818 ($443,994.25), accounting for 1.23% of its portfolio.
Michael Hannig, a buy-side analyst covering global healthcare and portfolio manager of a DACH [Germany, Austria, and Switzerland] small- and mid-cap fund at DJE Kapital, suggested to Reuters that Novartis could regain investor confidence and replenish its pipeline following patent cliff exclusivity expirations by pursuing deals in the $5 billion to $10 billion range for late-stage assets or drugs nearing approval, subject to due diligence: “Larger transactions will likely be assessed carefully by investors considering the mixed market reception to several prior deals.”
DJE Kapital has disclosed having more than €18.9 billion ($21.9 billion) in total assets under management across its funds as of but does not disclose the portfolio details of its individual funds.
Executives at two other Novartis investors, Bellevue Asset Management and Union Investment, defended Novartis: Guy Bettschart-Ghassabi, healthcare analyst at Bellevue Asset Management, noted that the HARBOR study was designed by Avidity before its acquisition by Novartis, while Markus Manns, portfolio manager at Union Investment, said the failure of del-desiran and pelacarsen was unfortunate but within normal probabilities of drug development success.
“They have to work harder to fulfill their post-2030 goals,” Manns said, “but it’s in the same camp as most other pharma companies.”
Bellevue Asset Management finished last year with AUM of CHF 5.3 billion (nearly $6.5 billion) while Union Investment reported €534.6 billion (about $620.3 billion), according to public disclosures that also exclude portfolio details.
Good news for competitors
Myles R. Minter, PhD, a partner and biotechnology analyst with William Blair, wrote in a research note that Novartis’ clinical miss for del-desiran is a positive development for several potential competitors, which, like the Swiss pharma giant, are also developing drugs designed to treat DM1 by targeting DMPK. These include:
- Dyne Therapeutics (Nasdaq: DYN), which is developing zeleciment basivarsen (z-basivarsen or DYNE-101), an anti-TfR1 FAb-conjugated antisense oligonucleotide (ASO). Z-basivarsen is under study in the Phase III HARMONIA trial (NCT07486934), after generating positive strength and cognition data in March from the Phase I/II ACHIEVE trial (NCT05481879), set to read out new one-year data later this month. Topline data is expected from ACHIEVE’s registrational expansion cohort in the first quarter of 2027.
- Sarepta Therapeutics (Nasdaq: SRPT) and Arrowhead Pharmaceuticals (Nasdaq: ARWR), which are co-developing SRP-1003 (formerly ARO-DM1), an RNA interference (RNAi) conjugate being assessed in a Phase I/IIa trial (NCT06138743) that generated positive early clinical results and is set to read out multiple ascending dose data later in the second half. Sarepta is in-licensing SRP-1003 from Arrowhead under a collaboration announced in 2024 that generated for Arrowhead $825 million in upfront cash and equity and could generate an eye-popping $10 billion in milestone payments.
- PepGen (Nasdaq: PEPG), which is developing PGN-EDODM1, which uses the company’s enhanced delivery oligonucleotide (EDO) technology to deliver a therapeutic oligonucleotide designed to restore the normal splicing function of MBNL1, a key RNA splicing protein. PGN-EDODM1 is under study in the Phase II FREEDOM2 trial, where PepGen has fully enrolled the 10 mg/kg MAD cohort, data from which are expected to be reported in November. In August, the trial’s independent data and safety monitoring board (DSMB) approved advancing to the highest dosage cohort of 12.5mg/kg.
- Vertex Pharmaceuticals (Nasdaq: VRTX) and Entrada Therapeutics (Nasdaq: TRDA), which are co-developing VX-670, which is expected to read out data from the Phase I/II GALILEO trial (NCT06185764) later in the second half of this year. VX-670 is a phosphorodiamidate morpholino oligonucleotide (PMO) connected to a cyclic peptide containing motif that Vertex in-licenses from Entrada under an up-to-$735 million collaboration announced in 2022.
“Today’s miss from del-desiran leaves open space to fill within the DM1 patient class, and we view Vertex/Entrada’s VX-670 as compelling,” Minter wrote, based on its endosomal escape vehicle (EEV) platform: “We view Entrada’s muscle-targeted EEV as possessing an impressive safety profile to date, which we view as important for entrance into higher dosing regimes that may be required for sufficient muscle tissue penetration and vHOT improvements to translate into a registrational trial setting.”
Lower projected sales
Novartis’ disappointing outcome for del-desiran in the HARBOR trial compelled analysts to cut their sales forecasts for the candidate, which Narasimhan projected had “$5 billion-plus peak sales potential” in an interview with Bloomberg TV.
Stefan Schneider, PhD, senior equity analyst, pharma with Vontobel Asset Management, removed the firm’s previous peak annual sales projection of $3 billion for del-desiran from its valuation model and cut its Novartis price target from CHF 128 ($156.77) to CHF 125 ($153.09). Vontobel previously gave Novartis a 50% probability of success for del-desiran.
Michael Schmidt, PhD, a senior biotech analyst and senior managing director at Guggenheim, slashed the firm’s risk-adjusted 2033 sales forecast for del-desiran by 45% from $1.76 billion to $960 million, with a 60% probability of success. The firm previously identified del-desiran and pelecarsen as critical to Novartis’ success from 2030 onward, along with a third candidate that recently succeeded in the clinic—remibrutinib, which generated positive topline data in the Phase III REMODEL-1 (NCT05147220) and REMODEL-2 (NCT05156281) in relapsing multiple sclerosis, Novartis said.
Remibrutinib is now marketed by the company as Rhapsido® in chronic spontaneous urticaria (CSU) in adults who remain symptomatic despite H1 antihistamine treatment.
Novartis has maintained its guidance to investors, foreseeing net sales growth at a compound annual rate of 5% to 6% at constant currencies between 2025 and 2030.
