Key facts
- A major Novartis shareholder is calling for a board shake-up.
- The shareholder cited back-to-back drug trial setbacks and disappointing acquisitions.
- Novartis shares fell over 10% after a drug acquired for $12 billion failed a late-stage study.
- The company's stock had already dropped 3% following disappointing heart drug trial results.
- The shareholder also called for an overhaul of Novartis' compensation structure.
- Novartis stated its financial guidance is unchanged and it has a broad pipeline.
A significant shareholder in Novartis has publicly called for a shake-up of the Swiss drugmaker's board, citing a series of drug trial setbacks and disappointing acquisitions as evidence of poor corporate governance.
David Samra, managing director at Artisan Partners, a major shareholder, told Reuters that successive chairmen have failed Novartis on acquisitions and that the company needs to improve its oversight of deals. "The party is over," Samra said in an interview, urging Novartis Chairman Giovanni Caforio to implement changes.
Novartis' stock fell more than 10% on Tuesday after a muscle-wasting disorder drug, acquired through the company's $12 billion takeover of U.S. firm Avidity, failed a late-stage study. This wiped nearly $30 billion off its market value. The company's shares had already declined 3% a day earlier following disappointing results from its heart drug pelacarsen.
Artisan Partners is among Novartis' 20 largest shareholders. Samra stated that if a $12 billion deal results in zero value, management should be penalized, though he acknowledged that other promising drugs could still emerge from the Avidity acquisition. He also criticized the 2024 acquisition of German biotech MorphoSys as disappointing, noting that investor enthusiasm waned after Novartis wrote down its value months later.
While many analysts view the recent setbacks as a test for Novartis CEO Vas Narasimhan, Samra defended his performance, stating Narasimhan has done a "very good job" running the business. Instead, Samra questioned the board's scrutiny over deals, asserting that "the acquisition track record is not very good" and that deals have destroyed value.
Samra also advocated for an overhaul of Novartis' compensation structure, arguing it relies too heavily on adjusted performance measures that exclude writedowns, rather than reflecting "real economic outcomes."
Novartis responded in a statement that its financial guidance remains unchanged by the recent setbacks and that it possesses a "broad" pipeline of medicines. The company added that it continues a disciplined approach to capital allocation through investing in its organic business, pursuing value-creating bolt-on acquisitions, and returning capital to shareholders via dividends and buybacks.