Novartis' latest trial setback serves a cautionary tale for investors betting on big pharma's strategy of making bite-size acquisitions to bolster their drug pipelines.

In theory, smaller deals offer big pharma access to promising and potentially lucrative drugs without the risk inherent in big bets. Case in point, the recent selloff in AstraZeneca's stock following market speculation that it was in talks to merge with Bristol Myers Squibb in what would have created a drug giant valued at roughly $400 billion.

Still, Novartis' $12 billion acquisition of Avidity Biosciences, completed in February, shows small deals can be painful too.

Novartis stock fell as much as 10% in European trading after the company said the most advanced drug candidate acquired in the Avidity deal didn't meet its primary objective in a late-stage trial for genetic neuromuscular disease myotonic dystrophy type 1.

This hiccup comes after Novartis took as $800 million writedown in 2024 from its $2.9 billion acquisition of biotech MorphoSys.