Novartis AG

After the market close on Sept. 4, Novartis reported that cardiometabolic drug pelacarsen missed its primary endpoint in its Lp(a)HORIZON trial. Separately, on Sept. 8, rare disease drug del-desiran missed its primary endpoint in the HARBOR trial in myotonic dystrophy type 1.

Why it matters: These are surprising late-stage failures for potential blockbuster assets, blemishing Novartis' recent track record of clinical trial success. At Sept. 8, shares are down about 14% from Sept. 4's close. Del-desiran was one of the key assets from Novartis' $12 billion acquisition of Avidity. It is unclear how much read-through there is for del-brax, which has a similar modality (an antibody-oligonucleotide conjugate causing gene knockdown) but treats a different disease. HARBOR and Lp(a)HORIZON cover the primary indications for del-desiran and pelacarsen, respectively. We had modeled $2.5 billion, $2.3 billion, and $2.3 billion of risk-adjusted 2035 revenue for del-desiran, pelacarsen, and del-brax, respectively.

The bottom line: After removing del-desiran and pelacarsen from our pipeline forecast and halving our forecast for del-brax, we lowered our fair value estimate for wide-moat Novartis to USD 130/CHF 105 from USD 140/CHF 109. After Sept. 8's selloff, shares are trading on the border of 2- and 3-star territory. Management maintained its 5%-6% five-year sales CAGR guidance for 2025-30, which we think is achievable depending on the timing of loss-of-exclusivity declines for Cosentyx (immunology). However, growth after 2030 is significantly more uncertain.

Coming up: In addition to data presentations on HARBOR and Lp(a)HORIZON, other catalysts include the presentation of remibrutinib's full relapsing multiple sclerosis data at MSToronto2026 (Oct. 21-23), remibrutinib's Phase 3 readout in hidradenitis suppurativa, ianalumab's Phase 3 readout in first line immune thrombocytopenia, and the US Food and Drug Administration decision on del-zota in Duchenne muscular dystrophy.

BLANK PAGEFor more perspective, please see our June 2026 Industry Landscape on the biopharmaceutical industry.

We have lowered our fair value estimate to $130 per US ADR (from $140) after removing del-desiran and pelacarsen from our pipeline forecast and halving our forecast for del-brax.

In October 2025, the firm increased its five-year revenue growth target to 6% from 5%, which is worth over $3 billion of additional revenue by 2029. We think this is a reasonable target, given pipeline progress and the acquisition of Avidity Biosciences.

Major growth drivers include Kesimpta (subcutaneous treatment for multiple sclerosis), Leqvio (cardiovascular drug), Fabhalta (complement inhibitor for rare immunology diseases), and cancer drugs such as Kisqali (breast cancer), Scemblix (a type of blood cancer), and Pluvicto (leading radioligand therapy). These growth drivers should offset exclusivity losses on cardiovascular drug Entresto, cancer drug Tasigna, and blood treatment Promacta over the next five years.

We forecast core operating margin to initially fall to the high 30s due to increased R&D costs associated with Avidity's clinical trials but to return to about 40% by 2030, as margins in its overall portfolio improve.

In the pipeline, Novartis is making strides and holds several drugs that could offer upside to our fair value, including Rhapsido (already approved in chronic spontaneous urticaria and undergoing Phase 3 trials for various other immunology indications) and ianalumab (Sjögren's disease, immune thrombocytopenia).

Patents, economies of scale, and a powerful distribution network support Novartis’ wide Morningstar Economic Moat Rating. Novartis’ patent-protected drugs carry strong pricing power, which enables the firm to generate returns on invested capital in excess of its cost of capital. Furthermore, the patents give the company time to develop the next generation of drugs before generic competition arises.

While Novartis holds a diversified product portfolio, there is some product concentration with its largest drugs, Entresto (15% of 2025 sales) and Cosentyx (12% of 2025 sales). However, we expect its newly launched products and pipeline assets can mitigate the generic competition while maintaining core operating profit margins of high 30s to 40%. The company has been especially strong at bringing cutting-edge new modalities to the market, including radioligand therapies, cell and gene therapies, and oligonucleotide therapies.

Novartis’ operating structure allows for cost-cutting following patent losses to reduce the margin pressure from lost high-margin drug sales. Novartis’ established product line creates the enormous cash flows needed to fund the average $800 million in development costs per new drug. In addition, a powerful distribution network sets up the company as a strong partner for smaller drug companies that lack Novartis’ resources.

We think the firm does face environmental, social, and governance risks, particularly related to potential US drug price-related policy reform to increase access by lowering drug prices (close to one-third of total sales are generated by prescription branded drug sales in the US). Ongoing product governance issues, including litigation related to side effects and patents, also weigh on the company. While we have factored these threats into our analysis, we don't see them as material to our moat rating.

Novartis' research and development focuses on therapeutic areas that have historically been amenable to commercial innovation, including oncology, immunology, rare disease, and cardiology.

The company has a plethora of growth drivers in its commercial portfolio, including Kesimpta (neurology), Leqvio (metabolic), cancer drugs Kisqali, Pluvicto, and Scemblix, and Fabhalta (renal/rare immunology).

Novartis continues to invest heavily in pipeline innovation, including radioligand cancer therapies and B-cell-mediated immunology.

The company is undergoing declines in older drugs, including Entresto, Tasigna, and Promacta/Revolade.

The company will need more progress in its immunology portfolio over the next five years to offset Cosentyx's loss of exclusivity, which we expect to occur around 2029 or so for the US market.

Novartis is not as active in immuno-oncology, which may hurt its overall cancer presence, given the potential that this class of drugs has for combination therapies.