Novartis recorded a $1.9 billion partial impairment charge in the third quarter tied to del-desiran, the myotonic dystrophy candidate it acquired through the $12 billion Avidity purchase, even as the company raised its full-year core operating income outlook to low single-digit growth from a previously expected low single-digit decline. The charge, disclosed alongside a 61 percent drop in reported operating income that the company attributed to higher research and development spending and the impairment itself, formalizes the financial hit from one of two trial setbacks announced in September.
The Avidity math
The impairment isolates the value destruction in a single asset from the Avidity deal while leaving the remainder of the pipeline intact on the balance sheet. Novartis said it remains happy with the acquisition, which included other experimental candidates, and CEO Vas Narasimhan told journalists the company does not need to change its M&A strategy. He characterized the market reaction to the September data, which saw the company lose nearly $30 billion in market value, as an overreaction.
Core performance beats expectations
Stripping out the impairment and other special items, core operating income rose 10 percent at constant exchange rates in the quarter, driven by higher net sales that topped analyst estimates. The company maintained its forecast for low single-digit net sales growth for the full year, citing demand for key cancer and multiple sclerosis products.
Governance pressure persists
Artisan Partners, a top-20 shareholder, called in September for a board shake-up to improve corporate governance following the trial disappointments. Narasimhan's insistence that the setbacks are a normal feature of drug development, rather than a strategic error, sets up a test of whether the raised guidance is enough to quiet demands for structural change.