Novartis AGM Question: Share Buybacks

Comments to point 4 & 5 of the Novartis Annual meeting, the Share Repurchase Program.

Our issue is primary optics and secondarily the fact that the Novartis Share Repurchase Program has not brought much upside to the share price. (discussed previously)

But to the optics issue: When cell phones first hit the market, they cost $12‘000 to $20‘000. Such is the price of cutting edge innovation, whether cell phones or new breakthrough innovative therapies.

With many of our members having worked in R & D, the intricacies of innovation, the huge amount of effort, the brainpower and the expense of developing something new cannot be overstated. In short, show stopping new therapies are expensive. As the breakthrough therapies and methodologies take root and flourish, the price over the longer term will decrease. Just like the price of cell phones did.

However the healthcare sector is different to say the consumer goods sector. Healthcare innovation is so, as its innovations affect the core of our existence. Companies are held to different standards, its leaders to the highest ethical standards.

In the case of Novartis‘ new Avexis drug to cure spinal muscular atrophy. „Novartis Says $4M Price Is Reasonable for SMA Gene Therapy.“

With this kind of cure and its price tag a company holds a sword of life or death over an infant. This power brings with it a higher level of responsibility, than say Apple and its iPhone.

The optics: Even if insurance companies cover a portion of this cost, families would still be on the hook for a huge amount. For arguments sake, say $1 million. The family sells its house, its heirlooms, maybe the grandparents do the same, monetarize all assets to cure the child. The narrative could end here..

And then the parents, grandparents and public at large see that this company that has purveyed high ground aspirations, espousing the „high costs of innovation“, outcomes based pricing“ etc., then take the profits, essentially the family’s entire existence that they have relinquished, puts all this money into a pot called „Share buyback“ and destroy this value. There should be no surprise when this causes a massive backlash against the price of the company’s therapies.

We cannot see how the narrative to justify the high price of innovative new life saving therapies can be compatible with billions in annual share buy backs. National Health Authorities may also see the possibility leverage the existence buybacks to reduce prices for a companies drugs.