Major Novartis shareholder calls for board shakeup after drug trial setbacks

A major Novartis shareholder has urged a board restructuring to enhance corporate governance following the company's shares experiencing their largest decline in history. David Samra, managing director at Artisan Partners and founder of International Value Group, believes Giovanni Caforio, the board chairman, must enact changes at the highest level.

He specifically targets improving the team handling acquisitions, which have proven unsuccessful. "I think he needs to make changes at the board level," Samra stated to Reuters. "One of them should be on improving the team that's doing these deals because clearly they have been uninspiring at best," he continued. "I think that the board needs to improve their oversight of acquisitions... they need to bring in better talent on the board to do that and have an acquisition committee."

Samra did not criticize CEO Vas Narasimhan, who has led a 60% share price increase since his appointment in 2018, despite global challenges and conflicts. The company's shares plummeted over 10% and a staggering $30 billion was wiped off its market value on Tuesday, following the failure of a drug treatment for a muscle-wasting disorder in a late-stage study.

Earlier, the heart drug pelacarsen had also underperformed, causing the company's shares to drop more than 6% the previous day. While Artisan is the first investor to publicly demand board changes, other investors have expressed concerns over Novartis's M&A strategy to Reuters.

Samra emphasized that subsequent deals, such as Novartis's $12 billion acquisition of US firm Avidity, must be scrutinized more closely, stating that management should bear the consequences of such failures. He encouraged the board to revamp the compensation structure to reflect real economic outcomes rather than relying on adjusted performance measures, which exclude writedowns.

Despite the recent setbacks, Novartis maintains its financial guidance, highlighting a robust pipeline of medicines and a commitment to a disciplined approach to capital allocation.