The $12bn flop that Novartis's pay packets shrug off

On September 8th Novartis revealed that del-desiran, an experimental medicine for myotonic dystrophy, a rare muscle-wasting disease, had failed to beat a placebo in its pivotal trial, sending the stock down about a tenth in one of its worst days on record. The slide wiped roughly $30bn of market value in a single day—this after its promising cholesterol drug, pelacarsen, had already missed its goals a few days earlier.

For an investor, the immediate arithmetic is almost noise. Pipelines fail all the time; a drug that relied on hand-opening speed as its primary end-point was never a sure thing, and two missed molecules do not by themselves ruin a $260bn company. The instructive part is the reaction the misses have provoked among the people who own it—because it says more about how Novartis pays and supervises its managers than about any single trial.

A shareholder blames the board, not the boss

The loudest complaint has come not from a short-seller but from David Samra, who runs the international value strategy at Artisan Partners, one of Novartis's twenty largest shareholders. What is striking is what he is not asking for. He is not demanding a new chief executive. He wants a new board.

His distinction is precise and worth a moment. Vas Narasimhan, the CEO, has, in Samra's phrase, done "a very good job" running the business and bears no blame for the failed deals. The fault, as Samra frames it, lies with the directors who scrutinised and approved the acquisitions in the first place. That division of responsibility is more than a courtesy. Management executes; the board decides which large bets a company takes. When a bet is the problem, the institution that commissioned it is where accountability should sit.

A compensation system blind to losses

The deal in question sits at the centre of Novartis's strategy. Del-desiran came with the $12bn purchase of Avidity Biosciences, the centrepiece of the Avidity deal and the boldest move in a plan to refill the pipeline after the spin-off of the generics and consumer businesses. Barclays had pencilled in peak sales of over $3bn and put a 60% chance of success on the drug; in Samra's words, the $12bn deal went to zero.

Samra's sharper point concerns pay. Novartis rewards executives on "adjusted" performance measures, and impairments are treated as one-time, non-core items that fall out of the adjusted profit number. The consequence is a clean symmetry that flatters management at the shareholder's expense: a $12bn acquisition that collapses is booked as a writedown, excluded from the bonus calculation, and the people who took the risk are paid as though it never happened. A similar footnote applies to the $2.9bn purchase of MorphoSys, which took an $800m writedown within months of closing. When a loss is defined out of existence, the incentive to make the next bet more carefully disappears with it.

The growth target that demands more bets

This is where the argument runs into Novartis's own promises. The company targets average sales growth of 5–6% a year through 2030. With patent expiries on older drugs approaching and a thinner pipeline, analysts at Jefferies and Barclays argue that meeting such a target probably requires more acquisitions, not fewer. So Samra is asking the board to restrain precisely the activity that management's growth goal implies. That is an honest trade-off rather than a scandal: the price of chasing 5%-plus growth may be accepting the occasional $12bn stumble, and the real question is whether the people taking that risk should absorb the loss when it lands.

The week was not an unbroken catastrophe. On September 1st remibrutinib, an oral pill already approved for chronic hives, cleared its pivotal trials in relapsing multiple sclerosis—a genuine commercial win that shows the research engine still works. Novartis insists its financial guidance is unchanged and its pipeline broad. Reformers should take some of this at face value rather than treat a biotech setback as proof of institutional rot.

The binding constraint on accountability

But the governance gap is real, and the tools to close it are weak. Artisan Partners has no proxy-fight machinery; its leverage is public pressure and the annual shareholder meeting, a form of embarrassment rather than compulsion. The board, chaired by Giovanni Caforio, has so far conceded nothing.

Read annually, big pharma is a low-odds, high-ticket industry: dozens of bets fail so that a handful hit. The rational response is not to ban deals but to price them honestly, which means paying for outcomes that include the wiped-out ones. Samra has put his finger on the mechanism that prevents that pricing: a bonus system that treats a $12bn loss as noise. Whether Novartis's directors change it will tell a holder more about the risk in the next acquisition than any single trial result.