Artisan Partners calls for Novartis board changes amid trial, acquisition failures

Investing.com -- A major shareholder in Novartis has demanded changes to the Swiss drugmaker's board to improve corporate governance following a sharp decline in shares this week after two consecutive trial setbacks.

David Samra, managing director at Artisan Partners and founding partner of International Value Group, told Reuters Thursday that multiple past chairmen had failed Novartis on acquisitions and that the company needs to reform its deal oversight process.

"The party is over," Samra said, urging Novartis Chairman Giovanni Caforio to take action. Asset manager Artisan ranks among Novartis' 20 largest shareholders.

"I think he needs to make changes at the board level. One of them should be on improving the team that's doing these deals because clearly they have been uninspiring at best," Samra said.

On Tuesday, a muscle-wasting disorder drug acquired through Novartis' $12 billion takeover of U.S. firm Avidity failed a late-stage study. The news sent the company's shares down more than 10% and erased nearly $30 billion from its market value.

Novartis stock had already dropped 3% Monday after results from heart drug pelacarsen disappointed investors.

Artisan is the first investor to publicly demand board changes.

"If you do a $12 billion deal and it goes to zero, the management needs to be penalised for that," Samra said. He noted that other promising drugs could still emerge from the Avidity acquisition.

Novartis said in a statement that its financial guidance remains unchanged by recent setbacks and that it maintains a broad pipeline of medicines.

"We continue a disciplined and shareholder friendly approach to capital allocation by investing in the organic business, pursuing value-creating bolt-ons, and returning capital to shareholders through a growing annual dividend and share buybacks," the company said.

Samra also pointed to Novartis' 2024 acquisition of German biotech MorphoSys as a disappointing transaction. Investor enthusiasm faded after Novartis wrote down the value of the acquisition only months later.

Many analysts have viewed the latest setbacks as a test of Novartis CEO Vas Narasimhan, who has led the company since 2018.

Samra said he does not blame Narasimhan, stating he had done a "very good job" running the business. He instead questioned whether the board had exercised sufficient scrutiny over deals.

"The acquisition track record is not very good," Samra said, arguing that deals had destroyed value.

Samra also called on the board to reform Novartis' compensation structure, saying it relies too heavily on adjusted performance measures that exclude writedowns rather than reflecting "real economic outcomes."

Shares were trading over 1.6% higher in pre-market Thursday following the report.

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