Novartis’ group sales took a hit from COVID-19, and so did CEO Vas Narasimhan’s 2020 pay.
The Swiss pharma handed its CEO a pay package worth CHF10.38 million ($11.61 million) for 2020, down from CHF 11.44 million in 2019, according to its annual report (PDF).
Narasimhan’s base salary did increase by 5.5% over 2019’s level, but it was the annual bonus—a large part of which was tied to Novartis’ financial performance last year—that turned out to be a drag.
Like other biopharma companies, Novartis was slowed down by COVID-19. In 2020, the Swiss drugmaker hauled in sales of $48.7 billion—the only line item that came in below performance targets set for Narasimhan’s bonus.
And it’s not a shortfall that can be easily dismissed—sales account for 18% on his bonus scorecard. On other financial measures, namely operating income and free cash flow, Novartis outperformed.
The company’s clinical and regulatory progress also fell short of par, with COVID-19 once again at play; the company only “met” its innovation goal, which makes up 8% of the CEO’s annual incentive evaluation.
The pandemic delayed the progress of investigational radioligand therapy Lu-PSMA-617, Novartis noted.
Entresto added a large indication in heart failure with preserved ejection fraction earlier this week. Novartis had originally planned to file the data from the Entresto Paragon-HF study in the second half of 2019 but instead made the submission in the first quarter of 2020. Meanwhile, the gene therapy Zolgensma hit a snag on its way to a hoped-for expansion into older spinal muscular atrophy patients, thanks to a partial clinical hold on an intrathecal formulation of the drug.
On the brighter side, the company did win FDA nods for Tabrecta in non-small cell lung cancer with MET exon 14 skipping mutations, and ahead of rival Merck KGaA’s Tepmetko. Its new CD20-targeting antibody Kesimpta also launched during the pandemic, albeit into a crowded multiple sclerosis market.
For his 2019 pay, Narasimhan opted out of the piece of his bonus linked to “building trust with society”—a measure that involves ethical standards, drug pricing and other social values. That move followed revelations about doctored animal testing data—and its delayed reporting to the FDA—in Zolgensma’s application by Novartis’ AveXis unit, now called Novartis Gene Therapies.
For 2020, the board decided Narasimhan's management team went “significantly above” their ethics-focused targets. These include the settlement of a marathon legal fight over a whistleblower's kickback allegations. In mid-2020, the company agreed to pay more than $700 million to wrap up claims that it used speaker programs as a disguise for kickbacks to doctors in exchange for prescriptions. The company also rolled out a new code of ethics in September.
All told, the board handed Narasimhan CHF 2.64 million in annual incentive pay, which is just equal to its target amount. It’s quite common for big biopharma CEOs to win bonuses above their targets; for example, Narasimhan scored 160% of his target payout in 2019, which translated into CHF 4.02 million.
The large part of Narasimhan’s 2020 equity grants came from long-term awards, which amounted to CHF 5.71 million. Those grants won’t be up for evaluation until the end of 2022, when he could get paid as much as double that amount. So far, Novartis sales growth is tracking below target because of the pandemic. Its relative total shareholder return is also positioned at only 11th out of a peer group of 15.
In contrast to the decline in Narasimhan’s 2020 compensation package, his actual take-home pay swelled to CHF12.72 million ($14.19 million) in 2020 from CHF 10.62 million for 2019.
That’s mainly because of the long-term incentive grants Narasimhan started receiving when he became Novartis CEO in February 2018—much bigger than those he received as the company's R&D chief.
Those larger grants came up for evaluation this year. As a result, Narasimhan’s realized long-term incentives doubled to CHF 8.05 million in 2020—which came from a 126% payout—from CHF 4.02 million in 2019.
Editor's Note: The story has been updated to clarify that the Entresto milestone delay was not related to the COVID-19 pandemic.