Novartis (NYSE:NVS) is preparing for a crucial period as investors look beyond its quarterly earnings release on Tuesday and focus on three major clinical trial results expected later this year that could determine the company’s long-term growth trajectory.
The Swiss pharmaceutical group’s upcoming studies are widely viewed as key to supporting its premium market valuation, particularly as the industry prepares for significant patent expirations over the coming years.
Three late-stage studies take centre stage
Analysts believe the outcomes for cardiovascular treatment pelacarsen, multiple sclerosis candidate remibrutinib and genetic disease therapy del-desiran will play an important role in shaping Novartis’ product portfolio well into the next decade.
“Markets can be unforgiving in R&D…with even a small shortfall in clinical trials being punished heavily, whilst knockout results are treated with relief,” said Ketan Patel, a fund manager at London-based Novartis investor Whitefriars.
The importance of successful drug development has been highlighted across the pharmaceutical sector. Earlier this month, AstraZeneca shares declined after a late-stage trial setback involving a treatment for a neurological disease with potential cardiovascular applications.
Chief Executive Vas Narasimhan, who has led Novartis for the past eight years, has previously stated that the company expects to continue growing despite what he has described as the largest wave of patent expirations in its history.
“Management’s body language on those (trial) readouts will be very much a focus,” said Barclays analyst James Gordon.
Blockbuster potential could offset future patent losses
According to analyst estimates, the three experimental medicines could collectively generate more than $10 billion in peak annual revenue, helping to offset expected patent expirations for key products including psoriasis and arthritis treatment Cosentyx and breast cancer medicine Kisqali later this decade.
Meanwhile, heart failure drug Entresto is already facing generic competition, with analysts forecasting sales could decline by around $4 billion this year.
Valuation leaves little room for disappointment
Some analysts caution that investor expectations are already reflected in Novartis’ valuation, with the company trading at roughly 16 times forward earnings. Its shares have climbed approximately 11% this year and around 25% over the past 12 months.
“At 16 times, you do need those growth levers to come through,” said Jefferies analyst Michael Leuchten.
“It’s more about the momentum in the second half, and then you might as well tuck in the slightly riskier pipeline readouts that are around the corner.”
Goldman Sachs analyst James Quigley believes the company will need strong results from at least two of the three studies.
“If two of those fail, that 16-times multiple looks very, very vulnerable,” he said.
Investors await management’s outlook
Beyond the trial results themselves, investors are expected to scrutinise management’s commentary on the timing of data releases and whether executives express confidence that the treatments can deliver “clinically meaningful” benefits, an important benchmark for regulators, physicians and healthcare payers.
UBS analysts estimate pelacarsen could achieve statistical significance with approximately a 12% relative reduction in cardiovascular risk, although many clinicians may look for reductions of 15% or more before considering the results clinically compelling.
Pelacarsen, expected to be the first of the three major readouts, is being evaluated in the HORIZON study to determine whether lowering lipoprotein(a), or Lp(a), can reduce the risk of heart attacks and strokes.
“Lp(a) is particularly interesting because there is nothing on the market today,” said Sven Borho, managing partner at investment firm OrbiMed, which manages recent Novartis investor Worldwide Healthcare Trust’s portfolio.
If Novartis succeeds in bringing the treatment to market ahead of competitors, Borho believes it could become one of the company’s most important growth products.
“It will be big because you’re going to be on it for the rest of your life.”
Novartis stock price
