A Fine Art
Vasella's early embrace of the generics business was, in its way, as risky as translational medicine. But there he was following
not the science but the accounting—yet still he was more or less blazing his own trail. He steered Sandoz through a series
of acquisitions in strategic regions, such as Lek in Slovenia, Sabex in Canada, and Durascan in Denmark. Sandoz products gradually
slipped into markets across Western Europe, as well as in Mexico, Argentina, Turkey, and a other key emerging markets. After
consolidating these far-flung ops under the Sandoz name in 2002, the firm's "branded generics" strategy began to gain traction;
in 2004, its $8 billion acquisition of Hexal, in Germany, and Eon, in the US, has established Sandoz as world's number-two
global generics maker.
But the generics bubble will burst by 2015, as the last small-molecule megablockbusters lose their patents. Biologics already
make up almost half of all the products on the global market, and next year $18 billion's worth of biologics will lose exclusivity.
The quick-and-dirty copycat chemical companies will vanish, yielding to an elite with the expertise, technology, and money
to produce specialty generics and biosimilars.
Sandoz has already dug in, producing the first biosimilars—recombinant human growth hormone and epoetin alfa—to win approval
in the EU, Japan, and the US (though Novartis had to sue FDA to get the submission accepted). Yet despite the fact that these
drugs are among the most lucrative on hospital formularies sales have been slow. "It will take time for physicians to fully
understand how biosimilars fit into the treatment options," said Ajaz Hussain, Sandoz's vice president and global head of
Biopharmaceutical Development. "It will take several products, and several companies, to promote wider uptake."
In May, Novartis paid $1.2 billion for the injectable generic cancer drug business of Austria's Ebewe Pharma, which recorded
only $272 million in sales last year. That raised eyebrows, but Vasella countered that Ebewe has new molecules on tap. The
main road to future growth is in emerging markets, where demand for affordable chemo agents will soar as the global oncology
market hits an estimated $60 billion in 2017. Several of the company's products are already standard-of-care for many types
of cancers. "Ebewe's current geographical reach is small," says Keeping. "But as part of Sandoz, it will expand very quickly."
Following the accounting also leads directly to the payer, the point at which all of Vasella's strategies converge. "Diversifying
into OTC, generics, and vaccines enables bundling the entire spectrum of products when negotiating with payers, putting it
in the best possible position to get coverage for high-cost drugs," says Cliff Kalb. "Novartis has elevated it to a fine art."
And Joe Jimenez is the master. After Jimenez was promoted as pharma czar, he slashed jobs in Basel and reorganized the drug
development group into eight-person teams tasked with getting a single drug to market. Jimenez also prioritized early and
frequent check-ins with regulators. The pharma unit is asking for input about specific products from public health systems
like NICE in order to design clinical trials that provide data that better reflect the value proposition. Rebate pricing in
Germany, a reference market for much of the EU, is another innovation.
Sandoz sales slowed for the first time in 2008, partly because it had no new US product launches. But now the gloves are off.
Vasella hired a new general counsel for the US market when Jeff George took over the top job. Late last year, Novartis also
ruffled feathers when, through some administrative legerdemain, it managed to exclude Sandoz from membership in the International
Federation of Pharmaceutical Manufacturers and Associations (IFPMA), exempting its own generics division from the trade group's
The Patent Truth
Ethics matter in the drug industry, until they don't. Novartis gets 8 percent of its annual pharma sales from emerging markets,
one of the highest percentages of any Big Pharma; by 2020, one in every five dollars spent on its products will come from
the developing world. Such rewards come with responsibility, as Vasella recognized by having Novartis signed onto the UN's
Global Compact in 2000. Yet the best intentions of corporate citizenship are often tested by the dire inequalities of wealth,
and the high price of branded drugs, especially for life-threatening conditions, has been a flashpoint for pharma.
Vasella has frequently asserted his belief in the morality of patent exclusivity, an essential link in the ecosystem of innovation;
he has calling fighting patents "unethical." For the head of the world's second largest generics producer, this position suggests
a certain inconsistency.
In 2007, Vasella challenged a ruling by an Indian patent office invalidating Novartis' Gleevec patent. India only extended
protection to drugs patented after 1995, so Novartis had to file a new patent, based on a minor modification that it claimed
was a "significant improvement" and so merited a 20-year exclusivity. The patent office disagreed. Vasella went to court.
Whatever the merits of Vasella's case, in the court of public opinion, Novartis stood no chance: It was a big, fat pharma
vs. dirt-poor Indians. Vasella's challenge was portrayed by his opponents as a threat to the Indian generics industry, then
the main source of affordable essential drugs for the developing world. Doctors without Borders, NGOs, patient advocacy groups,
and figures ranging from the Indian Health Minister to Brian Drucker (the scientist who discovered Gleevec and 2009 Lasker
Award recipient), lined up to support the global protest campaign, urging Vasella to change his mind. His supporters defended
the challenge as a test case of the Indian government's resolve to enforce patent-protection legislation in conformity with
When the court denied the challenge, Vasella refused to admit defeat. He threatened to shift hundreds of millions of dollars
in planned investment from India to China. In a typically memorable riposte, he told the Financial Times, "It's not a punishment. It's just a question of the culture for investment. Do you buy a house if you know people will break
in and sleep in your bedroom?"