Novartis has recorded about $2.2 billion in charges tied to two late-stage drug setbacks while raising its full-year core operating income outlook after stronger demand for key cancer and multiple-sclerosis medicines. The Swiss drugmaker said third-quarter operating income fell 61% as research spending and impairment charges weighed on reported profit, but adjusted core operating income rose 10% at constant exchange rates and beat analyst expectations.
Del-desiran accounted for most of the charge
Novartis booked a $1.9 billion partial impairment on del-desiran, an experimental treatment for myotonic dystrophy acquired through its $12 billion purchase of Avidity. Development has been delayed after disappointing clinical results, reducing the estimated value assigned to the medicine.
The company has not abandoned the program. Chief Financial Officer Mukul Mehta said Novartis still believes the drug can ultimately succeed, although the timeline and risk profile have changed.
Pelacarsen was written off
A second setback came from pelacarsen, a cardiovascular drug that failed in late-stage testing. Novartis took a $300 million charge and wrote off the asset.
The two failures arrived close together and raised questions among investors about the company’s recent deal-making and research pipeline.
Core earnings were stronger than the headline numbers
Despite the large accounting charges, core operating income increased 10% at constant exchange rates. Stronger sales of cancer and multiple-sclerosis medicines helped offset higher research and development costs.
That distinction matters because impairment charges reflect a reassessment of previous investment rather than the current quarter’s underlying cash generation.
Full-year guidance was raised
Novartis now expects core operating income to grow by a low single-digit percentage in 2026. The company had previously forecast a low single-digit decline.
It maintained its expectation for low single-digit net sales growth, indicating that the improved profit view is coming from stronger product mix and operating performance rather than a major change in revenue expectations.
Management is defending the acquisition strategy
Chief Executive Vas Narasimhan said the company does not plan to change its mergers-and-acquisitions strategy because of the recent trial failures. He argued that setbacks are an unavoidable part of drug development and that the Avidity acquisition included other experimental assets beyond del-desiran.
The comments came after some shareholders questioned whether Novartis had paid too much for pipeline assets with significant clinical risk.
Cash flow gives Novartis room for more deals
The company expects free cash flow to exceed $20 billion over the next five years, according to management comments reported by Reuters. That could support smaller bolt-on acquisitions in the roughly $2 billion range.
For investors, the key question is whether future purchases can replenish the pipeline without repeating the same write-down pattern.
Drug development remains a high-risk business
Late-stage failures are especially costly because companies have already spent years on research, manufacturing preparation and clinical trials. Acquired drugs can also carry large intangible values on the balance sheet, magnifying the accounting impact when development disappoints.
At the same time, successful medicines can generate billions of dollars in annual revenue, which is why large pharmaceutical companies continue to accept substantial pipeline risk.
Shares rose after the update
Novartis shares gained after the company lifted guidance, suggesting investors placed more weight on the underlying earnings strength than on the impairment charges.
The next major tests will be the progress of the remaining Avidity pipeline and whether growth medicines can continue offsetting losses of exclusivity on older products.
Sources
- Novartis third-quarter 2026 results
- Reuters, Oct. 27, 2026
Pipeline concentration is the bigger investor question
The setbacks matter because large drugmakers depend on a relatively small number of successful late-stage programs to replace revenue lost when older medicines face generic competition. A company can absorb individual failures, but repeated disappointments in expensive acquired assets can weaken confidence in research productivity and capital allocation.
Novartis is trying to counter that concern by pointing to the breadth of the Avidity portfolio and the continued growth of marketed medicines. Investors will watch whether other pipeline assets can advance quickly enough to justify the original acquisition price.
Strong commercial execution buys time
The quarter also shows why established product sales are important during a difficult research period. Higher demand for cancer and multiple-sclerosis treatments generated enough underlying profit growth for Novartis to improve its annual outlook despite the write-downs.
If those franchises continue to perform, management has more flexibility to invest in new trials and acquisitions without weakening the balance sheet. The risk is that pipeline setbacks become more damaging once growth from current products slows.
