Novartis: News with Blockbuster Potential

• 

  Wolfgang Hagl
  Redaktor

Concentration risk has long been a point of criticism regarding the SMI. This refers to the high weighting of Roche, Novartis, and Nestlé. In any case, yesterday this dominance led the Swiss stock market to start the month with a slight gain. With its gain, the SMI stood out from the crowd of stock markets suffering from rising oil prices and the sell-off in the bond markets. More or less solely responsible for this exceptional performance was Novartis. The pharmaceutical stock, which accounts for just under 16% of the SMI, posted a gain of more than 6%, marking its strongest trading day since March 2023.

Negative Article

That morning, two completely different news stories about the Basel-based industry giant had appeared on the news tickers. First, a report in the *Wall Street Journal* about the suspension of several cell therapy trials was published. Novartis later confirmed the temporary suspension of a program for autoimmune and neurological diseases. Three patients had died as a result of a severe immune reaction. According to the company, this is a known risk of so-called CAR-T therapy.

The tragic setback was overshadowed by the positive reaction to an ad hoc announcement from Novartis. In the announcement, the company reported positive research results for remibrutinib in the treatment of multiple sclerosis (MS). In two Phase III trials, the drug significantly reduced the annual relapse rate in patients compared to Aubagio, a medication from French competitor Sanofi. But that’s not all: inflammatory brain lesions were reduced, and the progression of physical disabilities was delayed. Novartis also emphasized the drug’s good tolerability, noting that there were no indications of liver damage in the studies.

Positive Comments

According to J.P. Morgan, analysts had, on average, projected peak sales of USD 3.4 billion for remibrutinib by 2030. Of that amount, approximately USD 3 billion was attributed to two types of hives—the active ingredient is already being used to treat this condition under a different brand name. According to the major U.S. bank, the consensus estimate for remibrutinib is likely to rise by at least USD 2 to 3 billion following the latest research success. Although data is still pending, experts say the risk associated with this potential blockbuster has decreased significantly. Consequently, J.P. Morgan reaffirmed its “Overweight” rating on Novartis. Another positive comment came from Jefferies. The research firm expects the drug to generate peak sales of more than USD 3 billion for MS alone. Novartis could now put pressure on Roche’s business in this therapeutic area with its blockbuster Ocrevus. In line with this thesis, the Basel-based rival was among the day’s losers on the SMI yesterday.

Investment Solution

Novartis is also drawing attention from a technical analysis perspective. The stock is poised to break through the horizontal resistance level around CHF 130. The large-cap stock had already clearly surpassed this hurdle on its way to a new all-time high of CHF 132.48. At CHF 130, the strike price of the call warrant is WNOC2V exactly at the resistance level outlined. As such, the Bank Vontobel leveraged security, which matures next March, has moved into the money. Traders can use the warrant to bet on a sustained upward breakout in Novartis. If, on the other hand, the stock bounces off this resistance level and turns downward, this speculative position could result in disproportionately large losses.