The Only Way Is Up

Novartis has (almost) arrived at the top. The world’s fourth largest pharmaceutical company received Fortune’s accolade of The World’s Most Admired Company. Can it continue to defy the downward trend affecting pharma? Julia Puppe spoke with CEO Daniel Vasella to find out more.

Everyone, it seems, loves Novartis. The Swiss drugmaker ranks high in innovation, financial soundness and what Fortune magazine calls ‘globalness’. Since 2000, the world’s fourth-largest pharmaceutical company has brought 15 new drugs to market in the US, while Merck managed only nine, and Pfizer 12.

What else has Novartis done to deserve Fortune’s title of “The World’s Most Admired Company”? CEO Daniel Vasella thinks. Then he says: “We have been innovation focused and result oriented, and gained market share. We have been doing well in development, getting more approvals than any other company in the last five years. We have had a highly rated sales force, which is number one in all major markets. And we have not just grown double digits but also engaged socially with programs in malaria, leprosy, cancer, and opened a research institute in Singapore, which focuses on neglected tropical diseases, not-for-profit.”

A cultural evolution
For all these reasons, Vasella reckons, his company is widely admired. And also because it demonstrates innovation power, and caring for people, all of which amalgamate with good results. “That is the doing of the entire organization, so it’s really a cultural evolution of the company. But being rated number one is somewhat uncomfortable because there’s only one way to go.” And if Novartis doesn’t stay at the top, Vasella states unsentimentally, that will be down.

Modesty? Or could it be true? In March, regulators requested that Novartis take Zelnorm off the market. The irritable bowel syndrome drug, which accounted for $561 million in sales, was thought to possibly cause a higher rate of heart attacks and strokes in patients. “We will overcome the loss,” Vasella remarks matter-of-factly, “but one has to be a realist. We may not remain the most admired company, but in some ways I enjoy fighting and competing for something even more than winning, as the latter often provides only a very short sense of achievement while the first is deeply energizing.”

A downward trend has long been affecting a struggling drug industry. Pharmaceutical companies, analysts claim, have to come to terms with a lack of innovation. Pharma is investing twice as much in research and development (R&D) as it was ten years ago to produce two-fifths of the new medicines it then produced. Between 2007 and 2011, patent protection for 52 major drugs, an average of ten a year, will expire in the US.

Generic competition
“The patent system,” says a competitive Vasella, “is ingenious. On the one side it gives a financial incentive for what you have achieved. At the same time, it says unless you achieve again, your success will end. By giving a time limit it is incentivizing innovative companies to innovate again. And at the same time, it offers – after patent expiry – access to a cheaper version of an established therapy. I’m against evergreening patents, but I’m equally against undermining patents. The system needs to be applied fairly.”

Seven of Novartis’ key products will become exposed to generic competition in the next four years. However, there is good news. Diovan, the biggest-selling of these products with annual sales of $4 billion, will not face generic competition here before 2012.

Also, Novartis has been awarded another title to fall back on: the Best Pipeline in 2006. “Our pipeline is very solid, it’s excellent, in fact. We have many compounds, not just in early phases but also in late phases, and compounds which are quite promising,’ says Vasella, and mentions FTY720, which is seeking to become the first oral once-daily therapy for patients with relapsing multiple sclerosis. “It has an innovative action mechanism. Extensive phase II trials have shown an unsurpassed efficacy for an oral therapy.”

Or take RAD001, a novel oral compound in development to inhibit a cell signalling pathway considered to be an important therapeutic target in oncology. Vasella: “It is a compound we initially developed for transplantation. It’s an mTor inhibitor, a pathway that plays a significant role in cancer. It could become very relevant as an adjuvant in cancer therapy.”

Data on Aclasta, the once a year injection of biphosphonate to prevent fractures, showed a drop in mortality in patients who had experienced a fracture and received secondary prevention. “The data looks exciting. There is a sense of accomplishment when you can bring something new, and new insights, which can really change the destiny for patients.”

There’s also Tasigna, Novartis’ Gleevecs’ more potent successor. Vasella is hopeful that the company will be launching the leukemia pill in the third quarter this year to treat a large portion of patients who have become either resistant or intolerant to Gleevec.

The Swiss drug maker also just launched Tekturna, a direct renin inhibitor which was approved in the US in March 2007. It is the first of a new antihypertensive class in years. “I’m very excited about renin antagonism because of the promises of this new class. Preclinical studies point towards direct renin receptors in tissues and cells, which could be important in the long course reducing mortality and morbidity. Of course this has to be investigated and proven clinically before making any claims.”

Safety concerns
So far, Novartis has pretty successfully stood up against the downward trend that has affected many others in the drug industry. However, Vasella is right to remain realistic. Even the most admired pharmaceutical company today has to worry about tomorrow. Tekturna’s sales could grow slowly at first, as it is a new class of drug entering a heavily populated market. Tasigna faces competition from Bristol-Myers Squibb's Sprycel. And then there’s the battle Novartis’ Galvus lost to Merck’s Januvia in the multi-billion dollar diabetes market.

Vasella admits: “Merck beat us on the speed to market. But sometimes there’s a phase II and we still hope to be back in the race. Of course we want to address any safety concerns, which emerged due to skin lesions in monkeys, although we did not see the same effects in humans. This will take some time. In view of the difficulties other antidiabetics are currently experiencing it is even more important to provide patients and physicians with a therapeutic choice, as the number of diabetics continues to increase.”

Research culture
Although diabetes is an ever-growing disease market, the Basel-based drugmaker turned around its drug discovery efforts in 2002, when Mark Fishman joined the company as President of the Novartis Institutes for Biomedical Research (NIBR). Rather than calculating the size of the potential disease market, Fishman has been concentrating his efforts mainly on diseases where there is clear unmet medical need and scientific tractability, like the rare inflammatory disease Muckle-Wells-Syndrome.

“Mark has changed research from the point of view of scientific approach. He’s changed the culture in research and he has changed the standard. Thanks to Mark, we have been able to attract top-level scientists and create a climate where people can challenge each other on a factual basis but still provide each other support. And now we have just opened a new R&D center in China, which will employ about 400 people when fully staffed. That’s another exciting venture. I’m impressed and optimistic about the work that is going on in research,” says Vasella.

The new Novartis Institutes for BioMedical Research (NIBR) in Shanghai’s Zhanjiang Park is the first integrated R&D center in China for Novartis. The center will focus on diseases prevalent in China and Asia, in particular infectious causes of cancer. Vasella: “For example, liver cancer, stomach cancer, and naso-pharyngeal cancers, which are often linked to chronic infections.”

The $100 million center will also include an integrated exploratory development center to further develop the concept of mechanism-based medicine and leverage emerging new technologies. NIBR Shanghai aims to become a global center for biomedical innovation by combining modern drug discovery approaches with those of traditional Chinese medicine and performing enhanced safety investigations, biomarker detection, bioanalytics, and gene expression profiling. “We have started collaborations with Chinese institutes, for example, the Shanghai Institute of Materia Medica, which will hopefully provide active substances from traditional Chinese medicine. We also collaborate with local drug manufacturers like Wuxi PharmaTech. And so this new research center will help us to contribute to the needs of patients in China and elsewhere.”

American business sense
Vasella, a physician by training, has worked with patients and is able to relate to how patients feel, and what they experience. “It gives me a clinical kind of view and judgment. We talk about the pipeline and new products, and my experience as physician allows me to understand the language which is spoken in R&D. This is difficult sometimes for people who have no technical background to understand and frame things properly.”

Growing up and completing medical school in Switzerland, Vasella started as an intern at a university hospital in Bern in 1980. Eight years later, he was offered a job in marketing at Sandoz and sent to train at the company’s headquarters in East Hanover, NJ. His business sense has been described as quintessentially American. “I take it as a compliment,” Vasella says. “My business training took place in the US. I also had the opportunity to go to Harvard Business School. The experience of the US environment, the pragmatism, the high quality in medicine, in biomedical research, and in business have been impressive. It’s a very uncomplicated business environment in many ways.”

The quintessential American business sense, Vasella describes, is fact based, to the point, result oriented and uncluttered. It is easy to understand. The CEO likes to think that his management style reflects these qualities as well. Though he admits that he used to be too tough and too demanding. “After the merger [of Ciba-Geigy and Sandoz], when we had a lax organization and people were often not up to the task, it was appropriate. But I had to change because I wanted people to work with motivation and a sense of autonomy and accountability. When they’re competent, driven, transparent in the way they act, and have integrity, then you need to be supportive. I listened to feedback and adapted my management style. Continuous learning is essential in every job.”

Vasella has also been described as impatient, and as someone who likes to get involved rather than delegate. “All these descriptions are partially true,” he reckons. “I delegate a large number of projects and my team conducts a lot of the business, and makes its own decisions. But when something’s not going right, I intervene. If I like something a lot, I ought to have the right to get involved. But it’s impossible to be the CEO of a large company and to get involved in everything. If you get involved too often, people will delegate all decisions upwards and end up being passive. You will slow down the organization dramatically. I don’t like to procrastinate decisions. I can be patient and let things mature, but at a certain stage I will say, ‘Now move!’, even if this means to take risks.”

Risks worth taking
Vasella believes that taking a risk is R&D’s daily bread. “In the pharmaceutical industry, we face failure much more often than success in the development process. It’s an integral part of doing business. When you make investments, you take a bet. No risk, no progress.”

One particular risk, Vasella remembers, that was worth taking was Gleevec, Novartis' second-biggest product, which transformed leukaemia treatment. “We built a factory and ramped-up production based on very limited data. It was a $100 million investment that paid-off. Gleevec sales grew 17 percent last year. That’s one example. Today, we discuss other projects and may decide to go with large development programs of which we don’t know if the outcome will be positive or not. But in the end, if it’s clinically relevant, we ought to know.”

It seems that even though Novartis may face a downward trend along with many others in the industry, Vasella won’t have to fear the worst with 138 projects in clinical development, amongst which are 50 new molecular entities (NMEs), and 104 in Phase II and beyond. His main strategic goals will remain unchanged over the coming years. The 53-year-old aims to be at the forefront of innovation, able to take informed and calculated risks, and to be a formidable marketer. He wants to secure his company’s globally competitive position by increasing size, global presence, and attracting top talent. “Last year, we received 360,000 spontaneous applications. We need to maintain that. We have divested our nutrition businesses and are now 100 percent focused on healthcare. We need to continue to gain market share even if in a year we lose a patent, which is inevitable. Unless we have this ambition, we will not succeed.”