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Novartis Chief Executive Officer Joseph Jimenez had worked in the pharmaceutical industry only four years before taking the helm of the Swiss drug giant in February 2010. Yet his brief tenure in the business hasn’t kept him from crafting a bold solution to a problem that’s long stumped drug industry veterans: how to manage the so-called patent cliff when lucrative medicines lose patent protection. Veteran executives at some companies, such as Sanofi, are acquiring smaller rivals with more promising drug pipelines. Others, such as managers at Pfizer, are cutting back on expensive research and development to save cash. But Jimenez, only 13 months away from the U.S. patent expiration of his company’s best-selling drug, Diovan, doesn’t feel pressed to do either. Instead, he’s targeting administrative costs while aggressively promoting medicines in emerging markets and cranking out new drugs from his own labs.
The longtime consumer-products executive is betting Novartis can maintain a third of the $6.1 billion in annual sales of Diovan, a hypertension drug, by focusing on sales in emerging markets. That may seem like a big drop, but it’s smaller than the post-patent nose dives suffered by former blockbusters such as Pfizer’s Norvasc hypertension pill and Merck’s cholesterol drug, Zocor. “We can get through the Diovan patent expiration if things go to plan,” says Jimenez. “The market hasn’t digested that fully.”
Investors have beaten down Novartis shares 14 percent this year, making it the third-worst performer in the Bloomberg Europe Pharmaceutical Index. The company also faces the loss of patents on its second-best seller, the cancer medicine Gleevec, starting in 2014. That puts an additional $4.27 billion in annual sales at risk. “They’ve got two cliffs with Diovan and Gleevec,” says MF Global analyst Justin Smith in London.
Jimenez says that shifting Diovan’s growth focus to emerging markets in Latin America and parts of Asia, where the blood pressure medicine already competes largely without patent protection, will help keep its blockbuster status. Diovan sales continue to rise in those fast-growing parts of the world even though the drug costs more than generic versions. (Many patients in markets where drug counterfeiting is widespread are willing to pay more for a brand’s perceived quality.) Jimenez figures he can expand promotion of the drug to doctors in these markets aggressively enough to retain at least $2 billion in Diovan sales worldwide. If he’s right, the strategy might buy him time for Novartis’s year-old Gilenya pill for multiple sclerosis and an upcoming asthma treatment to gain momentum in Western markets where drugs sell at much higher prices.
Novartis isn’t alone at the edge of the patent cliff. Drugs with $139 billion in combined annual sales will be going off patent in the next five years, according to researcher EvaluatePharma. Yet history suggests Jimenez’s stick-it-out strategy is risky: Sales of brand-name medicines often plunge more than 90 percent within a few years after the introduction of generic competition. Merck’s Zocor cholesterol pill, which logged $5.2 billion in revenue in 2004, had sales of just $468 million last year.
Jimenez is following a different course to retain sales of Gleevec, which will lose protection in Japan, the U.S., and Europe by 2016. He’s ramping up sales of Tasigna, a medicine based on Gleevec which, like its cousin, is approved for use against leukemia. Tasigna had $399 million in sales last year, but the drug could bring in more than $2 billion in 2015, according to the average estimate of analysts surveyed by Bloomberg. “We have time to convince physicians and the industry that patients are better off with Tasigna,” Jimenez says.
