Exclusive-Major Novartis shareholder calls for board shake-up after drug trial setbacks

By Oliver Hirt and Marleen Kaesebier

ZURICH, Sept 10 (Reuters) - A major shareholder in Novartis has called for a shake-up of the Swiss drugmaker's board to improve corporate governance after its shares suffered a record fall this week following back-to-back trial setbacks.

David Samra, managing director at Artisan Partners and founding partner of International Value Group, said successive chairmen had failed Novartis on acquisitions and that the company needed to change how it oversees deals.

"The party is over," Samra told Reuters in an interview, urging Novartis Chairman Giovanni Caforio to act. Asset manager Artisan is among Novartis' 20 largest shareholders, according to LSEG Workspace data.

"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."

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

Novartis' stock had already fallen 3% a day earlier after results from heart drug pelacarsen disappointed investors.

Artisan is the first investor to publicly call for board changes, though others have voiced concerns about Novartis' M&A strategy to Reuters. Public pressure from activist shareholders can often encourage other investors to push for change.

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

Novartis said in a statement that it's financial guidance was unchanged by recent setbacks and that it had 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," it said.

'THE ACQUISITION TRACK RECORD IS NOT VERY GOOD'

Samra also cited Novartis' 2024 acquisition of German biotech MorphoSys as a disappointing deal. 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.

But Samra said he did not blame Narasimhan, arguing he had done a "very good job" running the business, and 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 urged the board to overhaul Novartis' compensation structure, saying it relies too heavily on adjusted performance measures that exclude writedowns rather than reflecting "real economic outcomes."

(Reporting by Oliver Hirt in Zurich and Marleen Kaesebier; Editing by Dave Graham, Adam Jourdan and Mark Potter)