Novartis investor calls for board overhaul after trial setbacks trigger record share fall

A leading shareholder in Novartis (NVS) has called for a shake-up of the Swiss drugmaker's board to strengthen corporate governance, after back-to-back clinical trial failures this week sent its shares to their steepest fall on record.

David Samra, managing director at Artisan Partners (APAM), one of Novartis's 20 largest investors, and founding partner of its International Value Group, said the board needed to improve its scrutiny of dealmaking and urged chair Giovanni Caforio to act.

"I think he needs to make changes at the board level," Samra said, adding that one priority should be improving the team responsible for acquisitions, whose deals had been "uninspiring at best". He argued that the board should bring in stronger talent to oversee transactions and establish a dedicated acquisition committee.

Samra stopped short of criticizing chief executive Vas Narasimhan, who has presided over a 60 percent rise in the share price since taking the helm in 2018, despite a difficult backdrop of US tariffs under President Donald Trump and conflicts stretching from Ukraine to Iran.

A treatment for a muscle-wasting disorder that Novartis acquired through its $12bn takeover of US biotech Avidity failed a late-stage study. The shares tumbled more than 10 percent, erasing almost $30bn from the company's market value. The stock had already dropped a day earlier after disappointing results for pelacarsen, an experimental heart drug. Before this week's sell-off, Novartis shares had been up about 20 percent since the start of the year.

Artisan is the first investor to publicly demand board changes, although others have privately raised concerns about the group's M&A strategy. Public pressure from one shareholder can often embolden others to push for reform.

"If you do a $12bn deal and it goes to zero, the management needs to be penalized for that," Samra said, while acknowledging that other promising assets could yet emerge from the Avidity acquisition.

Novartis said its financial guidance was unaffected by the setbacks and pointed to a "broad" pipeline of medicines. The company said it remained committed to a disciplined, shareholder-friendly approach to capital allocation, investing in its organic business, pursuing bolt-on deals and returning cash through a rising dividend and share buybacks.

Samra also singled out Novartis's 2024 purchase of German biotech MorphoSys as a disappointment. Investor enthusiasm for that deal faded after the company wrote down its value only months after completion.

While many analysts regard the latest failures as a test of Narasimhan's leadership, Samra said the chief executive had done a "very good job" running the business, and instead questioned whether the board had applied sufficient rigor to its deals.

"The acquisition track record is not very good," he said, arguing that transactions had destroyed value. "The party is over."

He further called on the board to overhaul executive pay, which he said leaned too heavily on adjusted performance metrics that strip out writedowns, rather than reflecting real economic outcomes.