Daniel Vasella: Heart of Success

Oct 01, 2011


Daniel Vasella, MD
In marking the 30th anniversary of Pharmaceutical Executive, our industry has a lot to rejoice. We have made significant progress toward our primary purpose: reducing mortality, morbidity, and suffering through innovative and cost-effective medicines. In the past 30 years, life expectancy in the US has increased by five years. Some 40 percent of the gain is attributed to new medicines. Disability rates have decreased significantly among older age groups. Economic studies show that for every $1 spent on medicines, about $6 is saved in total healthcare spending.

However, we are also facing real challenges. Patent expiries have lead to revenue losses and our success now depends on our capability to replace lost revenues with new value-adding patented products. Can we do so? It's a relevant question, because for many companies, their R&D productivity has declined. A more recent problem is the steep rise in compliance violations, with more than $10 billion in fines and penalties imposed by government on major pharmaceutical companies over the past five years.

Despite these challenges, the industry has still been able to enjoy healthy growth in revenues and profits. Consolidation is strategically pursued by many companies to leverage cost synergies. Revenue growth is coming through innovation, geographic expansion, entering new business areas, and increases in sales force productivity. One result: While the top 10 companies had a 25 percent market share in 1990, the figure by the end of this past decade (2009) stood at 54 percent.

Building a new company with the global scale and reach to weather these many market changes is the key marker of my career as a business leader in healthcare. After the creation of Novartis in 1996, we divested many businesses that did not fit well with our aspiration to be an integrated healthcare company. We made several strategic acquisitions to broaden our offerings to patients aside of investing consistently in pharmaceutical R&D: prevention, with vaccines; reinforcing quality as a recognized attribute of generics; expanding care options to the patient through a diverse self-medication portfolio; and most recently building a new franchise in ophthalmic products. This focused diversification has significantly reduced the exposure of Novartis to loss of sales due to patent expiry, creating a more predictable business platform for the long-term.

Today, biologics represent an increasing proportion of the industry pipeline and regulatory approvals as they enjoy a higher success rate than small molecules. Novartis is investing significantly in biologics, and its biologics pipeline has grown over 250 percent in the last five years. Its commercial success is also notable. Novartis today enjoys the highest new molecular entity approvals in the industry.

Looking to the future, demand for healthcare will increase due to the rapid aging of societies and sedentary lifestyles. To avoid an explosion of costs, treatments will have to become more quality-driven and standardized based on outcomes data. Integrated care paired with better prevention will be equally important. A successful transformation of the healthcare system will also require aligned incentives for all participants. Industry will contribute through better diagnostics and targeted therapies, delivering better and more predictable patient outcomes. Nevertheless, I anticipate that one of the highest unmet needs will stem from neuropsychiatric diseases, where our scientific understanding is the least developed.

I contend we need still more investment in research to break ground in these areas. Paradoxically, calls for pharmaceutical companies to exit research to raise short-term profits are gaining momentum. The primary argument is that industry invests about 25 percent of R&D spending on preclinical research, and only about 5 percent of preclinical projects finally make it to the market. This is true, but it is often forgotten that the success rate varies widely between companies, and one should be careful to prescribe the same path forward for all. It is also argued that the biotech industry does a much better job of preclinical research. Academic scholars who compared the R&D productivity of pharma and biotech show that they have actually been similar during the last two decades. Recent industry benchmarking data also shows that internal compounds enjoy a higher market success rate than in-licensed compounds, as sellers have an advantage, knowing the molecule better than the buyer. Drug discovery must remain a core competency of industry. The future success of individual companies will be tightly linked to success in R&D.

Finally, economic growth in low- and middle-income countries will increase access to healthcare and medicines. However, hundreds of millions of people will remain in poverty, without real options for care. The industry has made significant progress in bringing medicines to needy patients, but much remains to be doneā€”and all stakeholders must play a role.