Novartis: Radically Remaking Its Drug Business

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Vasella's ability to keep patients in mind may come from his experiences not only as a physician but also as a patient. He described these to me in 2003 when we met to talk about Novartis' hopes for Gleevec. As a five-year-old growing up in the Swiss town of Fribourg, Vasella developed asthma and spent two summers on a farm in the mountains, separated from his family. At eight he contracted tuberculosis, followed by meningitis, and spent a year in a hospital and a sanatorium. But his greatest sorrows came later, starting when he was 10. "My older sister had Hodgkin's lymphoma," he told me. "I watched her over three years as she slowly got weaker. She died at 19." Three years later, his father died in surgery. A second sister, also a doctor, was killed in a car crash. Perhaps because of these tragedies, Vasella is devoted to his family. At the recent innovation board meeting, I was impressed when he unapologetically took a call from one of his three children.

A GOOD LISTENER

A childhood blighted by illness and loss led Vasella to a career in medicine. As a resident at the University of Bern, he worked with Dr. Rolf Adler, then head of internal medicine, who encouraged him to undergo psychoanalysis. It helped him work through his losses and sparked a lifelong interest in the field. (Vasella collects first-edition works of Sigmund Freud, among other authors.) Analysis also made Vasella a better doctor, says Adler, now professor emeritus at the University of Bern. "He was always question- ing both himself and others, but he was a good listener, too."

Adler was disappointed when the young doctor decided to leave medicine for a career in business in 1988. The reasons were telling: Vasella was unwilling to wait out the years it would take in academia to be given a chance to lead. Moving to New Jersey, he took a position as a salesman for the Swiss drug company Sandoz, where his wife's uncle was chairman. In 1992 he returned to Switzerland to head marketing, and two years later he took over as CEO. In 1996, at the age of 43, he pulled off a merger between Sandoz and another mid-tier drugmaker, Ciba-Geigy, to form Novartis.

Vasella's boldest move came in 2002, when he abandoned the traditional drug-development model. He declared that Novartis would investigate only diseases for which new drugs were desperately needed and where the genetics of the target illnesses were well understood. While other CEOs saw the pursuit of rare diseases as commercial suicide, Vasella believed many of the illnesses shared the genetic underpinnings with more common ailments.

Vasella also decided to move Novartis' main global research operation from Basel to Cambridge, Mass., a short distance from MIT, Harvard, and other paragons of biological research. Vasella spent about $4 billion on the move and then quickly made another controversial decision: He recruited Dr. Mark C. Fishman, a renowned cardiologist from Harvard who had no industry experience, to run the center and overhaul Novartis' drug-discovery business. "When Dan first called, I thought he had the wrong number," says Fishman, whose work studying zebra fish resulted in the discovery of 100 genetic mutations involved in the cardiovascular system. Fishman was happy at Harvard and saw little reason to leave, but Vasella persevered.

Fishman was the expert who convinced Vasella that medical research will reap the best results by focusing on a small number of important molecular pathways—the complex sequences of interactions among chemicals, proteins, and larger cell structures in the body that underlie all illnesses. "There are 24,000 genes in the genome, but there are only a few dozen pathways conserved throughout evolution," he says. With little known about how each gene functions in a larger cellular context, Fishman compares the genes to a mere list of words in a dictionary. Molecular pathways, he believes, are the missing grammar. Fishman reckons that finding all the links in a pathway and then locating the key signals that can turn genes on or off will lead Novartis to therapies for illnesses once deemed incurable: "The theory is, we will be able to apply them in disease after disease because the pathways are shared."

While Fishman's new colleagues admired his knowledge of developmental biology, there were also hard feelings. Many Novartis scientists were struggling with the new management and the shift in power from Basel to Cambridge. "Some were angry and demotivated," Vasella concedes. "The changes bred a lot of insecurity." In particular, many questioned the choice of Fishman. "People in research wondered what value someone who had never led a research organization in the pharmaceutical industry brought," recalls James Shannon, chairman and CEO of San Francisco biotech Cerimon Pharmaceuticals and the former global head of development at Novartis.

The biggest pushback came from the senior executives in sales and marketing who were used to calling the shots. Many couldn't fathom how a business model focused on small groups of patients would ever make money. The marketing side "was living happily off Diovan [Novartis' top-selling hypertension drug], only to have Mark Fishman tell them the age of the blockbuster is over," Shannon says. Things got worse when Fishman banned running commercial analyses of new drug candidates until the company had sufficient clinical data. This approach, backed by Vasella, was heresy in an industry that spends vast sums trying to assign a hypothetical value to each potential drug at every stage of the R&D process. "Dan threw a strategy on the table and said: 'This is it, go make it work,' " Shannon says.

GAME-CHANGING TRIAL

The most important test case for Vasella's ideas may turn out to be an illness almost nobody has heard of. It's an inflammatory disorder called Muckle-Wells syndrome in which a single genetic mutation results in the buildup of proteins that can cause rashes, joint pain, and fatal kidney damage. Muckle-Wells afflicts just a few thousand people worldwide, too small a number to attract most drugmakers. But Fishman and Vasella have a hunch the drug they've developed for it will prove effective in more widespread diseases. "With other companies, rare diseases are an afterthought," says Fishman. "For us they are often the starting point."

The drug, a synthetic antibody that can tamp down out-of-control immune responses, isn't new. Novartis briefly tested it against arthritis, then abandoned it. In 2004 one of Fishman's scientists asked to retest it in a trial involving just four patients suffering from Muckle-Wells. Within 24 hours of receiving the medicine, all four showed dramatic improvement, and within a week the disease was barely detectable in the blood. Patients remained in remission for as long as six months.

Despite these promising results, development efforts soon bogged down in debates over what the drug's exact commercial value might be. "This is precisely what paralyzes the industry and leads to the destruction of innovation," says Trevor Mundel, a physician-cum-mathematician brought in by Fishman as head of global development. The confusion persisted for a year and a half, Vasella recalls with irritation. The initial tests "took way too long, much longer than necessary."

Vasella ultimately resolved the disputes, and Novartis went on to test its drug in several rare autoimmune ailments. Using advanced computer models to show how different patients might respond to the treatment, Novartis was able to persuade the Food & Drug Administration that it was safe to move directly to late-stage trials involving hundreds of patients with Muckle-Wells and a related cluster of immune system diseases, thus shaving a year off the expected development time and saving tens of millions of dollars. While Pfizer, GlaxoSmithKline (GSK), and others are also using simulation, "Novartis is far ahead of the rest of the industry," says Dr. Howard Lee, director of the Center for Drug Development Science in Washington.

Vasella places a high premium on medical experience. After a major restructuring in 2007 that led to the loss of 1,260 sales and marketing jobs, Vasella replaced some of the company's senior leaders with medically trained scientists who grasped his approach. According to Shannon, some of the old guard fled voluntarily. "They saw Daniel rewarding projects such as Muckle-Wells and said: 'If this is what the future of the company looks like, it's not for us,' " he explains.

On June 3, The New England Journal of Medicine published important data on Novartis' phase 3 trial of the Muckle-Wells drug, now called Ilaris. More than 90% of children and adults suffering from the immune disorders the drug was designed to treat had rapid and sustained remissions. The drug is under priority review with the FDA, and Novartis hopes to seek approval for use against a variety of autoimmune diseases, including Type 2 diabetes and severe arthritis.

There is much more in the pipeline. Novartis is neck-and-neck in a race with Germany's Merck to launch the first oral treatment for multiple sclerosis. And Novartis' drug Afinitor, approved by the FDA in March for advanced kidney cancer, shows promise in six other forms of the disease. In trial data released this month, Afinitor shrank tumors by 50% or more in one-third of patients suffering from lymphoma, a cancer of the lymph system. And Gleevec? Fresh evidence shows that it targets the same genetic mutation involved in certain forms of melanoma, the deadliest of skin cancers. The lesson, says Fishman: "Well-designed drugs just keep on giving."

Capell is a senior writer in BusinessWeek's London bureau .

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