For Novartis, M&A is both a disease and cure

There is certainly a case for change. Novartis' board is stacked full of members who are either experts in consumer goods or medical research. Adding some M&A expertise might be helpful. That could help get deals over the line more quickly at a time when Novartis’ rivals like Novo Nordisk NOVOb.CO, GSK GSK.L, AstraZeneca AZN.L and Pfizer PFE.N are racing to replenish their own pipelines. And restoring investor trust quickly is critical. Novartis will this year lose some $4 billion of revenue following the arrival of generic versions of its heart failure treatment Entresto, blood disorder drug Promacta and cancer therapy Tasigna. It is also facing a steep patent cliff beginning in 2031, with drugs generating some $6 billion of revenue set to lose exclusivity by 2034.

In the pharma world, these kinds of setbacks are not unusual. The average failure rate of a drug from inception to approval is around 90%. And drugs can take over 10 years to develop. That’s why groups like Novartis buy up later-stage remedies to cut the time it takes to bring medications to market and to remove more of the risk of failure. But shareholders' extreme reaction to the Avidity disappointment raises the risk they may be less willing in the future to let Narasimhan splash the cash. After all, the 10% share price fall far outweighs the likely value loss from the failed drug: JPMorgan analysts reckoned it could have generated $1.6 billion of peak sales, on a risk-adjusted basis, less than 3% of Novartis' expected revenue this year, per LSEG data. One shareholder, Artisan Partners, has even called on Chairman Giovanni Caforio and the board to do a better job scrutinising acquisitions and to set up a new dealmaking committee.