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Drug company Novartis was arguably the most admired businesses in its industry for most of the 2000s. It was created in 1996 from the merger of competitors Ciba-Geigy and Sandoz in what was then the biggest takeover in corporate history, valued at $63bn. The deal established a trend for the pharmaceutical industry, and a series of further mergers by competitors pushed Novartis down the rankings a little. Novartis also established a reputation as one of the industry's strongest performers, with a strong suit in innovative tactics and successful new launches. A key factor was the willingness of former CEO Daniel Vasella to adopt aggressive marketing tactics, especially in the all-important US market; and Novartis was the first of the major drug companies to establish a strong position in generic as well as patent-protected pharmaceuticals. It also completed a series of large deals with fellow Swiss group Nestlé, selling its Gerber baby food and medical nutrition businesses, while also agreeing to acquire the food giant's ophthalmology division Alcon for almost $52bn, the largest purchase in Swiss corporate history. Vasella's successor Joe Jimenez has overseen further reconstruction of the group, not least sizeable asset-swapping deals in 2014 with GlaxoSmithKline and Eli Lilly.
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At a time when many drug companies stumbled over new product launches and patent expiries, Novartis demonstrated remarkable growth in the 2000s, powering its way into the upper ranks of the industry through strong drug development and clear-sighted strategic direction. As a result, the group has earned a reputation as one of the industry's most astute players. It was named "most admired" pharmaceutical company by trade paper Med Ad News no less than six times in seven years between 2006 and 2012. Since the retirement of pioneering CEO Daniel Vasella, performance has been less spectacular, but the group made the bold decision in 2014 to quit consumer healthcare to focus exclusively on prescription pharmaceuticals and opthalmology.
Novartis is now structured as three principal divisions: pharmaceuticals, Alcon and Sandoz. The group's sizeable vaccines and consumer health units were both dismantled under a 2014 deal agreed with GlaxoSmithKline (more below).
What is now branded as the Innovative Medicines division is the primary business within Novartis, now generating over two-thirds of revenues in 2016, or $33.0bn, and almost 90% of operating profits. Oncology drugs alone account for more than a third of sales.
In 2016 Novartis had nine products with sales of $1bn or more. Until recently, the group's biggest drug was Diovan for hypertension, which steadily increased its lead over the rest of the portfolio until peaking in 2010 at a little under $6.1bn. It has fallen dramatically since then as a result of competition and more recently loss of exclusivity. During 2007 the group introduced antihypertensive Exforge, which combines Diovan with another antihypertensive compound. That too achieved blockbuster status before beginning its own slow decline in 2015.
Diovan and Exforge were supported by two other treatments, Tekturna (also known in some markets as Rasilez) and Valturna. The former is a form of high blood pressure medicine, originally developed by independent Swiss biotech developer Speedel. Novartis introduced the product internationally in 2007 and secured full control of the product the following year by acquiring Speedel for $874m. However, further testing showed complications in some patients in 2011, prompting promotion of Tekturna/Rasiliez to be scaled back considerably. Valturna is a combination of Tekturna with the active ingredient from Diovan. Two other variant pills were introduced in 2011 as Tekamlo / Rasilamlo and Amturnide / Rasitrio. None of these products now feature among the group's top 20.
As a result of the decline of Diovan, the group's top-selling product worldwide from 2013 to 2016 was breakthrough leukaemia drug Gleevec / Glivec. It is now sold in over 90 countries, but sales have begun to decline following the introduction of generic competitors in the US. In 2017 alone, sales plunged by over 40% to $1.9bn. It is supported by Tasigna, for patients intolerant of Gleevec and other treatments, with sales of $1.8bn in 2017. Other blockbusters include Sandostatin for acromegaly and carcinoid tumours. Alzheimer's treatment Exelon joined the blockbuster category for the first time in 2010, but have since fallen back (to $381m in 2017).
Several other former oncology blockbusters, such as Zometa and Femara, have fallen out of the leading products as a result of patent expiry. The decline of transplantation drug Neoral / Sandimmun has been slightly slower, settling at $488m for 2017. Under the 2014 asset swap with GlaxoSmithKline, Novartis strengthened its position in cancer treatments with the acquisition of GSK's collection of oncology products - with combined sales of around $5bn - for a total of around $16bn. The most significant of these are melanoma treatment Tafinlar/Mekinist and Votrient for kidney cancer.
More recent additions to the blockbuster portfolio include Gilenya, the first oral treatment for multiple sclerosis, launched in 2010. This has continued to deliver steady growth, and in 2017 it became the group's top-selling product for the first time at $3.2bn. This was followed in 2011 by cancer therapy Afinitor / Votubia, now with sales of over $1.5bn. The strongest growth in 2016 and 2017 has come from Cosentyx, a treatment for psoriasis, sales of which quadrupled in 2016 and then almost doubled in 2017 to $2.1bn. Another strong performer was new myelofibrosis treatment Jakavi, sales of which jumped by a third in 2017 to $777m. One of the group's biggest new launches is cardio-metabolic drug Entresto, which is expected to achieve blockbuster status in 2018. Sales for 2017 more than doubled to $507m.
Three new oncology drugs were launched in 2017: Kisqali, Rydapt and Kymriah. The latter was the first CAR-T therapy to be approved in the US. The technology involves extracting immune cells from cancer sufferers, modifying them genetically in the lab to be more efficient and then re-injecting them.
In 2002, Novartis began to accumulate what is now a 33% shareholding in Swiss rival Roche in order to secure European rights to two drugs developed by what was then Roche's part-subsidiary Genentech. Those products are Lucentis, a treatment for degenerative eye diseases, to which the group has rights outside North America. It became one of Novartis's top four products in 2010, and has remained there ever since. Sales for 2017 were $1.9bn. (Roche has rights in the US, where the drug generated an additional $1.8bn). The group also markets a collection of other opthalmology drugs that were previously part of Alcon. There is a similar partnership with Roche for distribution of allergic asthma therapy Xolair . Also in the respiratory segment is a range of Breezhaler products (or Arcapta Neohaler in some markets), to improve breathing in patients with pulmonary disease. US rights to some of these were sold to smaller rival Sunovion in 2016. Novartis retains international rights, with combined sales of $674m.
Other important products include oral diabetes treatment Galvus / Eucreas; Exjade/Jadenu which removes excess iron in blood transfusions; inflammation treatment Voltaren; and Myfortic for use in transplantation medicine; and Stalevo / Comtan for Parkinson's disease.
Another key development in Novartis's recent history was a landmark deal to acquire Alcon from Nestlé. It was the world's leading specialist developer of ophthalmology surgical products (for cataract operations primarily), drugs and contact lenses. In 2008, Novartis agreed to pay around $39bn for a 77% shareholding in that business. The transaction took place in two installments. Novartis acquired an initial 25% holding immediately for $11bn, and absorbed Nestlé's remaining shares at the very beginning of 2010, while also making an offer to buy out minority shareholders. The process completed in Spring 2011. The final price of almost $52bn made the Alcon acquisition the biggest purchase to-date in Swiss corporate history.
Alcon became a new standalone division within the group, and took over control of other eye-related assets such as the group's CIBA Vision business, which develops a wide range of contact lenses and other optical products. Key vision care brands include Air Optix, Freshlook and Dailies contact lenses. In 2014, the group licensed new "smart lens" technology developed by Google, that incorporates miniature sensors into contact lenses.
However, performance of the core Alcon business has been disappointing since acquisition. The opthalmic pharma portfolio was transferred into the main drug division at the beginning of 2016, and later that year group chairman Joerg Reinhardt suggested that separation or divestment of the remaining Alcon assets may become a possibility. No Divisional revenues that year slipped 3% to $5.81bn, and the unit reported an operating loss. There was a recovery in 2017 to revenues of $6.02bn. Nevertheless, a spin-off of the business has been confirmed for 2019.
A separate division, Sandoz, is currently the world's second largest manufacturer (after Teva) of generics, or copies of pharmaceuticals for which patent protection has expired. This has become an increasingly important market segment, and Novartis has aggressively accumulated a substantial global lead as a result of a string of important acquisitions. The biggest deal to-date was announced in 2005 with the acquisition of German generic-drug maker Hexal and a controlling stake in US manufacturer Eon Labs for a combined $7.4bn. Sandoz already housed several subsidiary businesses around the globe, including Germany's Azupharma (acquired by the group in 1996), Austria's Biochemie, US-based Geneva Pharmaceuticals, Multipharma in Holland, Geminis in Spain, Canadian manufacturer Sabex (acquired in 2004 for $565m), Durascan in Denmark (also acquired 2004) and Slovenian generic drug manufacturer LEK (acquired in 2002 for €875m). In 2003 the group resurrected the Sandoz brand name as the umbrella for its worldwide generics operations. The group manufactures more than 1,000 different generic products, but its biggest sellers are versions of post-patent blockbusters such as Augmentin, Losec/Prilosec, Prozac and Claritin. Its top-seller is a generic form of thrombosis drug enoxaparin (previously marketed by Sanofi as Lovenox), sales of which topped $1bn in 2011. Divisional sales for Sandoz were $10.06bn in 2017.
However, this unit too is being pruned to improve overall profitability. In Sept 2018, Novartis agreed to sell around 300 of Sandoz' less profitable US-based generic products to Indian manufacturer Aurobindo Pharma. Price tag will be $900m upfront plus a further $100m or more according to future performance. The deal includes five manufacturing centres and around 750 employees.
Novartis Consumer Health had remained an important part of the group, but was steadily slimmed down during the 2000s with a series of disposals. By the beginning of 2014, it comprised just two operating units: OTC products and Animal Health. In April that year, Novartis outlined plans to divest both businesses. The OTC division, with sales of $3.1bn in 2014, was transferred in 2015 into a new joint venture with GlaxoSmithKline. Novartis retains a 36.5% shareholding (to GSK's 63.5%) as well as an option to put the remaining shares to its partner after three years. Brands transferred include non-prescription versions of the group's leading pharmaceuticals (such as Lamisil AT), as well as Prevacid24 antacid (under OTC license from prescription developer Takeda); Triaminic, Tixylix, Theraflu and Otrivin/Otrivine cough and cold remedies; Voltaren muscle relaxant; Nicotinell / Habitrol smoking-cessation products; Savlon first aid products; Ex-Lax laxative (also marketed as Benefiber); Transderm motion sickness patches; analgesic Excedrin, antacid Bufferin, advanced moisturizer Keri, cold remedy Comtrex and yeast infection treatment Vagistat; and the Aller-Eze allergy remedy range. Novartis no longer reports any revenues from consumer health but its share of profit is reflected in net income.
A separate deal was agreed to sell Novartis Animal Health to US rival Eli Lilly for $5.4bn, almost five times revenues. Brands include Program, Clomicalm, Sentinel and recent launch Deramaxx, an arthritis treatment for dogs. The sale closed in Jan 2015.
In 2006, the group established a separate Vaccines & Diagnostics division, following the purchase of the shares it didn't already own in Chiron Corporation, a US developer of vaccines and blood screening services. It had held a 42% stake in Chiron since the early 1990s. That company had for many years maintained a polite but firm independence from Novartis. However its license was temporarily suspended late in 2004 after regulators found evidence of sanitary problems at one of its plants in the UK, causing a huge shortfall in the availability of flu vaccinations in the US and Europe. Taking advantage of this setback, Novartis offered around $4.5bn in 2005 to acquire the outstanding shares in Chiron it didn't already own. The bid was initially declined by Chiron's board until Novartis raised its offer in November to $5.1bn. Chiron's vaccines business was merged with the existing vaccines division of Novartis. However the entire business was dismantled by the end of 2014. The diagnostics business was sold to Grifols of Spain in Jan 2014 for almost $1.7bn, around 2.5 times annual revenues. Later that year, Novartis agreed to sell the bulk of its vaccines business to GlaxoSmithKline for up to $7.1bn, and the anti-flu products Fluad and Fluvirin to Australian company CSL for $275m.
Until the end of 2006, the group also contained a substantial medical nutrition business, with brands including dieting formula OptiFast, nutrition supplement Resource and adult nutritional products Boost and Isocal, as well as more specialised products for hospital or nursing home patients. At the end of 2006, Novartis agreed to sell the nutrition division to Nestlé for around $2.5bn. A few months later Nestlé was able to persuade Novartis to part with its infant nutrition unit as well, built around Gerber, the leading infant food brand in North America by a considerable margin, with an estimated 80% market share. The sale price was $5.5bn. In 1999, Novartis sold off a collection of non-health-related businesses, including Wasa crackers, to Barilla. Later the remaining so-called "functional foods" were also put up for sale. Most of these, including Ovomaltine (or Ovaltine) brands were bought in 2002 by Associated British Foods for €272m.
Novartis group sales peaked in 2011 at a record $58.57bn. However, topline has slipped back since then as a result of divestments and currencies. For 2014, reported revenues were effectively flat at just under $58.0bn, and declined more significantly in 2015 as a result of disposals, falling to $49.41bn. Another 2% decline in 2016 brought the figure for that year to $48.52bn. At constant currencies, the figure would have been flat.
Net income for 2015 soared to $17.79bn as a result of the sale of consumer healthcare and animal health. Excluding one-off gains the figure was a more modest $7.03bn. That too declined in 2016 to just under $6.70bn. The latter figure includes a $703m profit share from the group's minority holdings in GSK Consumer Healthcare and Roche.
Revenues for 2017 rose 1% to $49.11bn, the first increase for three years. Net income was up 15% to $7.70bn. The US remained the largest individual market, accounting for 34% of group net sales. Europe as a whole contributed 36%.
The businesses which came together to form Novartis had coexisted for over a hundred years before they merged. The group's roots date back as far as 1758 when Johann Geigy-Gemuseus set up shop in Basel, Switzerland, to sell "materials, chemicals, dyes and drugs of all kinds". By the mid 19th-century, his great-grandson, Johann Geigy-Merien had taken over the business, and decided to make the move into manufacturing, founding a factory to make dyes. In 1859, the business began to produce the synthetic dye fuchsine. That same year, a rival Basel business founded by Alexander Clavel also began fuchsine production, and the two companies spent the next two decades in competition, each setting up sales offices around the world. In 1873, Clavel sold out to a group of investors who later incorporated the business as Chemische Industrie Basel, popularly known as Ciba.
Ciba and Geigy were not by any means alone in the dye market. They were joined in 1876 by a third company, Kern & Sandoz, also based in Basel. However the latter's founder, Edouard Sandoz, quickly began to diversify his operations. Breakthroughs in medical science encouraged him to move into pharmaceutical manufacture, and in 1895, the company began production of the fever control agent antipyrine. Four years later, Sandoz expanded again to make the artificial sweetener saccharin. Ciba followed suit, developing antiseptic Vioform and antirheumatic Salen in 1900. Ciba and Sandoz became ever more direct competitors as both companies opened a string of factories around the world in the years before World War I. In 1918, all three companies agreed to pool their international interests to form the cartel Basler IG.
Although they shared research information and other administrative functions, the three companies continued to develop their businesses independently. In 1935, Geigy began to develop a range of insecticides and set up a pharmaceutical research team three years later. Sandoz also moved into agribusiness in 1939. World War II created a temporary disruption of all three businesses, although Switzerland's neutrality protected them from the wholesale destruction that ravaged German and British competitors. In 1946, Geigy introduced the epoxy resin Araldite (now owned by Total subsidiary Bostik). At the same time the company's research scientist Peter Muller perfected the use of DDT as an insecticide, winning a Nobel Prize in 1948.
In 1950, the three companies decided to go their separate ways, dissolving the Basler IG cartel. All prospered during the 1950s and 1960s, with Sandoz expanding rapidly through a series of acquisitions including smaller rival Biochemie (1963), dietetics company Wander (developers of Ovomaltine/Ovaltine and Isostar, in 1967). Ciba and Geigy countered the growth of their former partner by agreeing to merge (as Ciba-Geigy) in 1970, and also jumped on the acquisition trail, buying US seeds business Funk in 1974. Sandoz promptly moved up a gear, acquiring Delmark in 1972, and seed companies Rogers Seed (1975), Northrup King (1976) and Zaadunie (1980). Later that decade, Sandoz moved into specialised construction chemicals with the purchase of American Master Builders and its Japanese counterpart Nisso. Ciba-Geigy diversified into contact lens development and eyecare, forming Ciba-Vision in 1987. Also that year the group formed a partnership with US biotech group Chiron to develop genetically-engineered vaccines. The company also dropped the Geigy from its name, becoming just Ciba in 1992.
The US market was becoming increasingly important to both companies. In 1994, Sandoz acquired the country's foremost baby foods company Gerber, and Ciba took a 50% stake in its partner Chiron. A year later, Sandoz merged its specialty chemicals businesses with those of Hoechst and spun them off as Clariant, in order to focus on pharmaceuticals and nutrition. To strengthen their position in the ever more competitive American market, the two companies agreed to the mammoth Novartis merger in 1996.
The newly created group made its core philosophy that of so-called "life sciences", promising to revolutionise agriculture and other areas through its pioneering work in genetic modification of foods. However, this new technology caused a huge storm with consumers concerned over the possible long-term effects of GM foods. Novartis was forced to drop GM ingredients from many of its food brands in the late 1990s, causing a further storm among the farmers to whom it continued to sell GM seeds. By 1999 Novartis, along with other companies using GM technology, was finding the backlash too hot to handle. As a result, in December 1999, the group announced that it would merge its crops and seeds divisions with AstraZeneca's Agrochemicals arm and spin the resulting company off to shareholders as Syngenta.
Novartis launched a string of new drugs in 2000 and 2001, several of which have become blockbusters. Gleevec, in particular, was an innovative new drug to combat leukemia. The group also launched an equally innovative discount scheme for elderly patients, offering discounts on all its drugs of up to 40%. Gleevec was marketed with an even more generous discounting scheme, provided for free to the poor and on a sliding scale to other patients dependent on income. The group also launched Zelnorm to treat irritable bowel syndrome. However plans to launch the latter in Europe (as Zelmac) were withdrawn mid-year as a result of differences in interpretation between US and European regulators over clinical tests results. Schizophrenia drug Zomaril and allergy treatment Xoliar also suffered development setbacks.
In 2002 the group confirmed that it had acquired a 20% shareholding in ailing Swiss rival Roche from private investment company BZ Group. Novartis described the move as a strategic investment, and was expected to propose a friendly merger at some point in the future. A combination of Roche and Novartis would create a company of approximately the same size as Glaxo Smithkline or Pfizer. The company increased its stake to almost 33% in early 2003. However Roche's controlling shareholders, the Hoffmann family, quickly announced that they would oppose any merger. Novartis acquired further shares in early 2004 giving it exactly a third of its rival, marginally below the level that would trigger a full bid.
In 2004, Novartis confirmed that it was considering a "white knight" bid for French rival Aventis, then facing hostile takeover by smaller competitor Sanofi-Synthelabo. However that route was quickly blocked when the French government was reported to have said it would do "everything in its power" to stop such a deal, which would lead to a loss of French ownership for a French company.
Last full revision 17th March 2017
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