For Novartis, M&A is both a disease and cure

Novartis AG

11/09/2026 11:24

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Aimee Donnellan
DUBLIN, Sept 11 (Reuters Breakingviews) - Novartis NOVN.S CEO Vas Narasimhan is in a tricky spot. This week, disappointing drug trials wiped some $30 billion off the pharma giant's market value, prompting a top shareholder to call for a board shake-up. The fallout suggests a lack of faith in the group's dealmaking skills. That's an issue given it will need to do a lot more M&A in the future.
Novartis’ timing is far from ideal. Last week, Narasimhan revealed the company was forced to pause eight clinical trials of an experimental cell therapy, called rap-cel, targeting autoimmune and neurological disorders, after three patients died. Three days later, the company revealed its cholesterol drug pelacarsen had failed to reduce cardiovascular events. Then on Tuesday, a muscle-wasting drug from Novartis’ $12 billion takeover of U.S. firm Avidity failed a late-stage study, sending the company’s shares down 10%.
In the pharma world, these kinds of setbacks are not unusual. The average failure rate of a drug from inception to approval is around 90%. And drugs can take over 10 years to develop. That’s why groups like Novartis buy up later-stage remedies to cut the time it takes to bring medications to market and to remove more of the risk of failure. But shareholders' extreme reaction to the Avidity disappointment raises the risk they may be less willing in the future to let Narasimhan splash the cash. After all, the 10% share price fall far outweighs the likely value loss from the failed drug: JPMorgan analysts reckoned it could have generated $1.6 billion of peak sales, on a risk-adjusted basis, less than 3% of Novartis' expected revenue this year, per LSEG data. One shareholder, Artisan Partners, has even called on Chairman Giovanni Caforio and the board to do a better job scrutinising acquisitions and to set up a new dealmaking committee.
There is certainly a case for change. Novartis' board is stacked full of members who are either experts in consumer goods or medical research. Adding some M&A expertise might be helpful. That could help get deals over the line more quickly at a time when Novartis’ rivals like Novo Nordisk NOVOb.CO, GSK GSK.L, AstraZeneca AZN.L and Pfizer PFE.N are racing to replenish their own pipelines. And restoring investor trust quickly is critical. Novartis will this year lose some $4 billion of revenue following the arrival of generic versions of its heart failure treatment Entresto, blood disorder drug Promacta and cancer therapy Tasigna. It is also facing a steep patent cliff beginning in 2031, with drugs generating some $6 billion of revenue set to lose exclusivity by 2034.
Despite the trial disappointments, Novartis reiterated its guidance for 2030. And, even with the sharp decline, the group is still valued at just under 15 times forward earnings, in line with AstraZeneca. But if investors fret that more destructive M&A is on the way, this valuation may begin to wobble.
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CONTEXT NEWS
A major shareholder in Novartis on September 10 called for a shake-up of the Swiss drugmaker's board to improve corporate governance after its shares suffered a record fall following back-to-back trial setbacks.
David Samra, managing director at top 20 investor Artisan Partners and founding partner of International Value Group, said the board needed to strengthen its oversight of acquisitions, calling for action from board chairman Giovanni Caforio.
On September 8, a muscle-wasting disorder drug acquired through Novartis' $12 billion takeover of U.S. firm Avidity failed a late-stage study, sending the company's shares tumbling more than 10% and wiping over $30 billion off its market value.
Novartis' stock, which had been up some 20% year-to-date before this week's slide, had already fallen a day earlier after results from heart drug pelacarsen disappointed investors.

(Editing by Neil Unmack; Production by Varun H K)
((For previous columns by the author, Reuters customers can click on DONNELLAN/Aimee.Donnellan@thomsonreuters.com))