Novartis takes $1.9bn hit on Avidity drug but lifts its profit outlook

What happened

The Financial Times (FT) reported that Novartis booked a $1.9bn writedown on a rare-disease drug from its Avidity purchase even as it upgraded its profit forecast. The Swiss company's own third-quarter release backs this up. Sales reached $14.5bn, up 4%. Operating income dropped to $1.8bn from $4.5bn, mainly because of the partial impairment on del-desiran, and net income fell 70% to $1.2bn. Core operating income, which strips out items like impairments, climbed 11% to $6.0bn. Novartis now sees 2026 core operating income flat to up by a low single-digit percentage at constant currencies, instead of a small decline. Its sales forecast was unchanged.

What it means

An impairment is an accounting charge a company takes when an asset is worth less than the value on its books. When Novartis bought Avidity Biosciences in a deal Reuters valued at $12bn, it put a price on del-desiran, an experimental treatment for myotonic dystrophy type 1, a muscle-wasting disease with no approved therapies. In September, the late-stage HARBOR trial missed its main goal: patients on the drug did not open their hands meaningfully faster than those on placebo. Reuters said the drug's estimated value was cut from $7.48bn because development will now take longer.

The charge does not mean Novartis is giving up. Finance chief Mukul Mehta told Reuters the company still expects del-desiran to succeed, which is why only part of its value was written off. That contrasts with pelacarsen, a heart drug that also failed a major trial in September and was fully written off with a further $300mn charge. Novartis said it saw signs of clinical activity in secondary measures and will talk to regulators about a path forward.

The underlying business looked healthier than the headline loss suggests. Breast cancer drug Kisqali grew 37% at constant currencies, multiple sclerosis treatment Kesimpta rose 22%, Scemblix jumped 67% and cholesterol drug Leqvio gained 63%. Those gains outweighed sales lost to cheaper generic copies of older medicines. Reuters said core operating income beat analyst expectations, and the shares traded higher on Tuesday.

The bigger question for investors is deal-making. September's setbacks wiped out nearly $30bn of market value, according to Reuters, and shareholder Artisan Partners called for a board shake-up. CNBC reported at the time that Barclays saw del-desiran as a test case for the Avidity purchase. Chief executive Vas Narasimhan pushed back on Tuesday, saying of the takeover approach: "We don't need to change our M&A strategy."

The bull case

Novartis showed it can grow profits even while older drugs lose patent protection. Core operating income beat forecasts, margins widened by about 2 percentage points, and guidance went up rather than down. Management still sees a path for del-desiran, and the company said its FSHD and Duchenne muscular dystrophy programs are progressing well. Del-zota, a Duchenne candidate, also won priority review from the FDA.

The bear case

The writedown confirms that the centerpiece of a $12bn acquisition is worth far less than Novartis expected, and a second drug, pelacarsen, was written off entirely. Net debt rose to $37.4bn at the end of September from $21.9bn at the start of the year, partly due to acquisitions. If future deals also disappoint, investors may question whether Novartis can replace revenue lost to generics.