Novartis Downgraded to Hold by Deutsche Bank After Second Clinical Setback

Deutsche Bank has downgraded Novartis (NOVN) to Hold from a previous Buy rating, slashing its price target on the pharmaceutical giant to 120 Swiss francs from 140 francs. The revision follows a second significant clinical trial disappointment in a short period, prompting concerns over the company's deal-making and future growth prospects.

Rationale for the Downgrade

The downgrade was triggered by a clinical trial miss for del-desiran, a treatment for the rare neuromuscular disorder DM1, according to a note from Deutsche Bank analyst Emmanuel Papadakis. This setback comes soon after a separate trial failure for the cardiovascular drug candidate pelacarsen.

The del-desiran result is particularly noteworthy as it represents the "first proof point" for the $12 billion acquisition of Avidity in 2025. The analyst stated that the failure "continues a run of very challenging deal-return metrics," casting doubt on the returns from Novartis's recent M&A activities.

Pipeline Gaps and Patent Cliff

These consecutive clinical misses create an "unresolved gap" in Novartis's development pipeline ahead of a major patent cliff in the early 2030s, Deutsche Bank warned. Several of the company's blockbuster drugs, including Cosentyx, Kisqali, and Kesimpta, are set to lose patent protection around that time.

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In light of these challenges, the analyst said it has become more difficult to justify significant upside for the stock at its current valuation of 14 times projected 2027 earnings. The note also highlighted added business development risk and expectations for a slow launch of ianalumab for Sjögren’s disease.

Market Reaction

The news of the del-desiran trial miss sent Novartis shares down more than 10% in Tuesday's trading. Papadakis described this market reaction as "somewhat severe."

Despite the downgrade, the analyst expects the company's next major data release in 2026, for remibrutinib in hidradenitis suppurativa, to yield positive results. He also noted that net revisions from the recent clinical outcomes will likely be neutral for the company's financials.