Novartis books $1.9 billion hit from drug trial setback, but lifts guidance

ZURICH/LONDON, Oct 27 — Novartis booked a $1.9 billion partial impairment ​charge on Tuesday related to a drug trial setback in September, but also lifted its full-year guidance.

The Swiss drugmaker reported a 61% drop ‌in third-quarter operating income, which Novartis attributed to higher research and development costs and a $1.9 billion partial ⁠impairment charge for del-desiran, one of ​two consecutive major trial setbacks unveiled in ⁠September that sent its shares tumbling at the time.

The drug, which was ‌being tested for myotonic ‌dystrophy, a muscle-wasting disease with no approved treatments, was obtained through ⁠Novartis' $12 billion acquisition of Avidity.

The drugmaker's shares, however, ⁠rose 2.3% in early trade after the company also lifted its full-year core operating income guidance to low single-digit percentage growth compared with the low single-digit decline previously expected, after strong third-quarter demand for its key cancer and multiple sclerosis drugs. It maintained its forecast for low single-digit net ‌sales growth.

NO CHANGE TO M&A STRATEGY

Despite the drug ​trial setbacks that heightened investor scrutiny around the drugmaker's business development strategy, and called its valuation into question, CEO Vas Narasimhan said he remained confident in the company's acquisition strategy.

Narasimhan said the setbacks were part of drug development and that there was an overreaction by some in the market.

"We don't need to change our M&A strategy," Narasimhan said in a call with ​journalists, adding his company remains happy with the Avidity deal, which also included other experimental ‌drug candidates.

Artisan Partners, ‌among Novartis' ⁠top 20 shareholders, had in September called for a shake-up of the board to improve corporate governance after the company lost nearly $30 billion in market value following the underwhelming trial updates.

In the third quarter, core operating income, adjusted for special ‌items, increased 10% at constant ​exchange rates thanks to higher net sales, ‌the Basel-based company said, beating ⁠analyst expectations.

(Reporting ​by Marleen Kaesebier, Bhanvi Satija and Patricia Weiss, Editing by Friederike Heine, Thomas Derpinghaus and ​Susan Fenton)

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