Novartis's Investor Wants a New Board, Not a New CEO — and Pay That Can't Ignore a $12 Billion Mistake

A major Novartis shareholder says the drugmaker's board needs a shake-up. Then comes the part that makes you double-check the byline: he also says the CEO has done "a very good job" and does not blame him at all.

That combination is unusual enough to repay a minute of unpacking. Investors who show up angry usually aim at whoever runs the place. David Samra, the portfolio manager at Artisan Partners — which sits among Novartis's 20 largest shareholders and, per Reuters, is the first big investor to publicly call for board changes — is aiming at the board of directors, not at CEO Vas Narasimhan. The split is the story.

The trigger is real, and it is mostly ordinary. Three pipeline blows landed inside a week. Del-desiran, the drug Novartis got when it paid $12 billion for Avidity Biosciences, failed its late-stage trial in myotonic dystrophy type 1, failing even to beat placebo on how fast patients could open their hands. The day before, pelacarsen, the heart drug Novartis had hoped would be another blockbuster, had already flopped. A cell-therapy program, rap-cel, was pulled back in part after patient deaths. On the del-desiran day the shares closed down roughly 11% — the worst trading day on record — wiping something like $30 billion off the market value in a week.

That failure is ordinary pharma operating risk: you build or buy drugs, and sometimes they do not work. The interesting part is what Samra says the failure exposes.

The writedown you get paid on

His complaint is mostly about plumbing — the bonus formula and the deal-approval process. The team responsible for acquisitions has been "uninspiring at best", he said. He wants management "penalised" for big failures, pointing at the $12 billion Avidity deal that lost its entire value and at the $2.9 billion MorphoSys acquisition that Novartis wrote down by $800 million just months after closing it. And he wants the compensation structure overhauled, because in his view it leans too heavily on "adjusted" performance measures that strip out writedowns and so do not reflect "real economic outcomes".

That last bit is the mechanism. Consider what it means for a pay metric to exclude writedowns.

When a company buys something and later decides it is worth less, it takes an impairment charge. In the accounting kitchen, that is a "one-time, non-core adjusting item" — not part of normal operating profit. A compensation plan built on "adjusted" profit therefore sweeps the impairment aside. In practice it works out something like this:

Investor: You paid $12 billion for a drug, and the drug just failed and the value is gone. Executive: Correct. Investor: Did your bonus reflect that? Executive: Adjusted operating profit was fine, as usual.

The people who approved paying $12 billion get paid as if the deal had never been a mistake. That is the "real economic outcomes" Samra is complaining are missing from the scorecard. This is a compensation structure doing exactly what a compensation structure is for: deciding, in advance, which losses matter for pay. It decided the writedowns do not.

Why the board, not the CEO

That, in turn, is why the fire is aimed at the board rather than the CEO, and it is the right target. Boards approve acquisitions; CEOs run them and execute what they're handed. If you think the deals are the problem — overpriced, under-vetted, value-destroying — you fix the body that approves them, not the manager who operates whatever comes through. Samra's carve-out for Narasimhan is not politeness; it's a statement about where the accountability interface actually sits.

It is also worth being clear about what kind of action this is. Artisan Partners is a long-only fundamental value manager, not a classic activist flush with proxy-fight machinery. Its leverage here is the annual meeting and the press, phrased as a public request to Chairman Giovanni Caforio — governance by embarrassment, essentially. That is the tool available to a large but non-control shareholder with no seat in the room: name the problem loudly and hope the board hears its own shareholders.

The awkward math

Novartis, for its part, is holding its line. It calls the pipeline "broad," keeps a "disciplined and shareholder-friendly approach," and restates its target of 5% to 6% average annual sales growth through 2030. Steady state looks fine on paper: the stock, near $137 after losing about 15% in five days, trades around 17 times forward earnings and yields roughly 2.5%.

The awkward part is that the company's own growth target and the shareholder's solution pull in opposite directions. Analysts at Jefferies argue the 5%–6% target is likely unattainable without more acquisitions, and Barclays noted that the roughly 20% valuation premium Novartis has long carried over the sector "may now be debated". Samra wants fewer value-destroying deals and tougher oversight of the ones that get done. The company, given a patent cliff and a thinner pipeline, may need more big deals, not fewer. So even a successful board shake-up doesn't resolve the underlying tension — it just means the next set of acquisitions faces an audience that paid attention to the last ones.

The deepest insight of Samra's complaint is about incentives, not competence. A board that approves a $12 billion bet cares about the result only if the result matters to anyone's pay. Right now, thanks to the adjusted metrics, the result largely doesn't. Whether Artisan gets its way, the question it has forced onto the table is simple: at Novartis, who actually loses money when a big acquisition goes wrong? If the answer is only the shareholders, the compensation structure has done its job — and the shareholders, one of whom has now said so in public, have noticed.